<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1995
1933 ACT FILE NO. 33-572
1940 ACT FILE NO.811-4409
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 |X|
POST-EFFECTIVE AMENDMENT NO. 56 |X|
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 58 |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 December 29, 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.
Alabama Tax Free Portfolio, Arkansas Tax Free Portfolio, Georgia Tax Free
Portfolio, Kentucky Tax Free Portfolio, Louisiana Tax Free Portfolio, Maryland
Tax Free Portfolio, Missouri Tax Free Portfolio, North Carolina Tax Free
Portfolio, Oregon Tax Free Portfolio, South Carolina Tax Free Portfolio,
Tennessee Tax Free Portfolio and Virginia Tax Free Portfolio have also executed
this Registration Statement.
<TABLE>
CALCULATION OF REGISTRATION FEE
======================================================================================================
<CAPTION>
AMOUNT OF PROPOSED MAXIMUM PROPOSED AGGREGATE AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE MAXIMUM REGISTRATION
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial
Interest 9,988,307 $10.51<F1> $104,977,108<F2> $100
- ------------------------------------------------------------------------------------------------------
<FN>
<F1> Computed under Rule 457(d) on the basis of the maximum aggregate offering
price per share at the close of business on October 17, 1995.
<F2> Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24e-2 for those series with a fiscal year end of July 31,
1995. $266,423,969 of shares were redeemed during the fiscal year ended
July 31, 1995. $161,736,861 of shares were used for reductions pursuant to
Paragraph (c) of Rule 24f-2 during such fiscal year. $104,687,108 of shares
redeemed are being used for the reduction of the registration fee in this
Amendment. While no fee is required for the $104,687,108 of shares, the
Registrant has elected to register, for $100, an additional $290,000 of
shares.
</TABLE>
The Registrant has filed a Declaration pursuant to Rule 24f-2. On
September 20, 1995, Registrant filed its "Notice" as required by that Rule for
the series of the Registrant with the fiscal year end of July 31, 1995, on
October 17, 1995 filed its "Notice" for the series of the Registrant with the
fiscal year end of August 31, 1995 and on November 18, 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. Registrant continues its
election to register an indefinite number of shares of beneficial interest
pursuant to Rule 24f-2.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheets required by Rule 481(a) under Securities Act of
1933
<TABLE>
<CAPTION>
<S> <C>
Part A -- The Combined Prospectuses of:
EV Classic Alabama Tax Free Fund EV Marathon Alabama Tax Free Fund
EV Classic Arkansas Tax Free Fund EV Marathon Arkansas Tax Free Fund
EV Classic Georgia Tax Free Fund EV Marathon Georgia Tax Free Fund
EV Classic Kentucky Tax Free Fund EV Marathon Kentucky Tax Free Fund
EV Classic Louisiana Tax Free Fund EV Marathon Louisiana Tax Free Fund
EV Classic Maryland Tax Free Fund EV Marathon Maryland Tax Free Fund
EV Classic Missouri Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Classic North Carolina Tax Free Fund EV Marathon North Carolina Tax Free Fund
EV Classic Oregon Tax Free Fund EV Marathon Oregon Tax Free Fund
EV Classic South Carolina Tax Free Fund EV Marathon South Carolina Tax Free Fund
EV Classic Tennessee Tax Free Fund EV Marathon Tennessee Tax Free Fund
EV Classic Virginia Tax Free Fund EV Marathon Virginia Tax Free Fund
Part B -- The Combined Statements of Additional Information of:
EV Classic Alabama Tax Free Fund EV Marathon Alabama Tax Free Fund
EV Classic Arkansas Tax Free Fund EV Marathon Arkansas Tax Free Fund
EV Classic Georgia Tax Free Fund EV Marathon Georgia Tax Free Fund
EV Classic Kentucky Tax Free Fund EV Marathon Kentucky Tax Free Fund
EV Classic Louisiana Tax Free Fund EV Marathon Louisiana Tax Free Fund
EV Classic Maryland Tax Free Fund EV Marathon Maryland Tax Free Fund
EV Classic Missouri Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Classic North Carolina Tax Free Fund EV Marathon North Carolina Tax Free Fund
EV Classic Oregon Tax Free Fund EV Marathon Oregon Tax Free Fund
EV Classic South Carolina Tax Free Fund EV Marathon South Carolina Tax Free Fund
EV Classic Tennessee Tax Free Fund EV Marathon Tennessee Tax Free Fund
EV Classic Virginia Tax Free Fund EV Marathon Virginia Tax Free Fund
</TABLE>
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
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
<TABLE>
<CAPTION>
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ------ ------------ ------------------
<S> <C> <C>
1. ...................... Cover Page Cover Page
2. ...................... Synopsis Shareholder and Fund Expenses
3. ...................... Condensed Financial Information The Funds' Financial Highlights; Performance
Information
4. ...................... General Description of Registrant The Funds' Investment Objectives; How the
Funds and the Portfolios Invest their
Assets; Organization of the Funds and the
Portfolios
5. ...................... Management of the Fund Management of the Funds and the Portfolios
5A....................... Management's Discussion of Fund Not Applicable
Performance
6. ...................... Capital Stock and Other Securities Organization of the Funds and the Portfolios;
Reports to Shareholders; The Lifetime
Investing Account/Distribution Options;
Distributions and Taxes
7. ...................... Purchase of Securities Being Offered Valuing Fund Shares; How to Buy Fund Shares;
The Lifetime Investing Account/Distribution
Options; Distribution Plan; The Eaton Vance
Exchange Privilege; Eaton Vance
Shareholder Services
8. ...................... Redemption or Repurchase How to Redeem Fund Shares
9. ...................... Pending Legal Proceedings Not Applicable
<CAPTION>
PART B
ITEM NO. ITEM CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------ ------------ --------------------------------------------
<S> <C> <C>
10. ...................... Cover Page Cover Page
11. ...................... Table of Contents Table of Contents
12. ...................... General Information and History Other Information
13. ...................... Investment Objectives and Policies Investment Objective and Policies; Investment
Restrictions
14. ...................... Management of the Fund Trustees and Officers
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; 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;
Distribution Plan
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>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV CLASSIC
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
EV CLASSIC ALABAMA MUNICIPALS FUND EV CLASSIC MISSOURI MUNICIPALS FUND
EV CLASSIC ARKANSAS MUNICIPALS FUND EV CLASSIC NORTH CAROLINA MUNICIPALS FUND
EV CLASSIC GEORGIA MUNICIPALS FUND EV CLASSIC OREGON MUNICIPALS FUND
EV CLASSIC KENTUCKY MUNICIPALS FUND EV CLASSIC SOUTH CAROLINA MUNICIPALS FUND
EV CLASSIC LOUISIANA MUNICIPALS FUND EV CLASSIC TENNESSEE MUNICIPALS FUND
EV CLASSIC MARYLAND MUNICIPALS FUND EV CLASSIC VIRGINIA MUNICIPALS FUND
THE EV CLASSIC MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO PROVIDE
CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THEIR RESPECTIVE STATE
TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated January 1, 1996 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C>
Shareholder and Fund Expenses ............... 2 How to Redeem Fund Shares .......................... 19
The Funds' Financial Highlights ............. 5 Reports to Shareholders ............................ 20
The Funds' Investment Objectives ............. 8 The Lifetime Investing Account/Distribution
How the Funds and the Portfolios Options ........................................... 20
Invest their Assets ......................... 9 The Eaton Vance Exchange Privilege ................. 21
Organization of the Funds and the Portfolios . 12 Eaton Vance Shareholder Services ................... 22
Management of the Funds and the Portfolios ... 14 Distributions and Taxes ............................ 22
Distribution Plans ........................... 16 Performance Information ............................ 23
Valuing Fund Shares .......................... 17 Appendix -- State Specific Information ............. 25
How to Buy Fund Shares ....................... 18
- ------------------------------------------------------------------------------------------------------------
PROSPECTUS DATED JANUARY 1, 1996
</TABLE>
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge Imposed on Redemption During the First Year
(as a percentage of redemption proceeds exclusive of all reinvestments and
capital appreciation in the account) 1.00%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.40% 0.37% 0.41% 0.42%
Rule 12b-1 Distribution (and Service) Fees 0.95 0.95 0.95 0.95
Other Expenses 0.33 0.10 0.19 0.09
---- ---- ---- ----
Total Operating Expenses 1.68% 1.42% 1.55% 1.46%
==== ==== ==== ====
<CAPTION>
EXAMPLE
-------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including a contingent deferred sales charge in the case
of redemption during the first year after purchase) on a $1,000 investment, assuming (a) 5% annual
return and (b) redemption at the end of each period:
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 27 $ 24 $ 26 $ 25
3 Years 53 45 49 46
5 Years 91 78 84 80
10 Years 199 170 185 175
<CAPTION>
An investor would pay the following expenses on the same investment, assuming (a) 5% return and
(b) no redemptions:
<S> <C> <C> <C> <C>
1 Year $ 17 $ 14 $ 16 $ 15
3 Years 53 45 49 46
5 Years 91 78 84 80
10 Years 199 170 185 175
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-----------------------------------------------------------------------------------------------------------
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.12% 0.40% 0.38% 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.95 0.95 0.95 0.95
Other Expenses 0.34 0.15 0.28 0.16
---- ---- ---- ----
Total Operating Expenses 1.41% 1.50% 1.61% 1.55%
==== ==== ==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE
-----------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including a contingent deferred sales charge in the case of
redemption during the first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and
(b) redemption at the end of each period:
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 24 $ 25 $ 26 $ 26
3 Years 45 47 51 49
5 Years 77 82 88 84
10 Years 169 179 191 185
<CAPTION>
An investor would pay the following expenses on the same investment, assuming (a) 5% return and (b)
no redemptions:
<S> <C> <C> <C> <C>
1 Year $ 14 $ 15 $ 16 $ 16
3 Years 45 47 51 49
5 Years 77 82 88 84
10 Years 169 179 191 185
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-----------------------------------------------------------------------------------------------------------
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.42% 0.33% 0.31% 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.95 0.95 0.95 0.95
Other Expenses 0.14 0.33 0.19 0.03
---- ---- ---- ----
Total Operating Expenses 1.51% 1.61% 1.45% 1.42%
==== ==== ==== ====
<CAPTION>
EXAMPLE
----------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including a contingent deferred sales charge in the case of
redemption during the first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and
(b) redemption at the end of each period:
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 25 $ 26 $ 25 $ 24
3 Years 48 51 46 45
5 Years 82 88 79 78
10 Years 180 191 174 170
<CAPTION>
An investor would pay the following expenses on the same investment, assuming (a) 5% return and (b) no
redemptions:
<S> <C> <C> <C> <C>
1 Year $ 15 $ 16 $ 15 $ 14
3 Years 48 51 46 45
5 Years 82 88 79 78
10 Years 180 191 174 170
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year. Absent a fee
reduction (in the case of the Investment Adviser Fee) and/or an expense
allocation (in the case of Other Expenses) expenses of the following Funds would
have been the following percentage of average daily net assets: Alabama Fund
Other Expenses would have been 0.45%; Arkansas Fund Other Expenses would have
been 2.77%; Georgia Fund Other Expenses would have been 0.85%; Kentucky Fund
Other Expenses would have been 1.45%; Louisiana Fund Investment Adviser Fee and
Other Expenses would have been 0.23% and 0.80%, respectively; Maryland Fund
Other Expenses would have been 2.21%; Missouri Fund Other Expenses would have
been 0.90%; North Carolina Fund Other Expenses would have been 0.43%; Oregon
Fund Other Expenses would have been 1.79%; South Carolina Fund Other Expenses
would have been 1.30%; Tennessee Fund Other Expenses would have been 1.66%; and
Virginia Fund Other Expenses would have been 1.44%.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Fund were instead to retain the services of
an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual return
will vary. For further information regarding the expenses of the Funds and the
Portfolios see "The Funds" Financial Highlights", "Organization of the Funds and
the Portfolios", "Management of the Funds and the Portfolios" and "How to Redeem
Fund Shares". A long-term shareholder in a Fund may pay more than the economic
equivalent of the maximum front-end sales charge permitted by a rule of the
National Association of Securities Dealers, Inc. See "Distribution Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more than
one year prior to redemption, (b) shares acquired through the reinvestment of
dividends and distributions or (c) any appreciation in value of other shares in
the account (see "How to Redeem Fund Shares"), and no such charge is imposed on
exchanges of Fund shares for shares of one or more other funds listed under "The
Eaton Vance Exchange Privilege."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 14.
Other investment companies with different distribution arrangements and fees are
investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in connction with the audited
financial statements included in the Funds' Annual Report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of a Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter, Eaton Vance Distributors, Inc.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------
ALABAMA FUND ARKANSAS FUND GEORGIA FUND KENTUCKY FUND
------------------- ----------------- ----------------- ------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.320 $ 10.000 $ 9.530 $10.000 $ 9.220 $10.000 $ 9.210 $10.000
------- -------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.418 $ 0.296 $ 0.424 $ 0.214 $ 0.412 $ 0.294 $ 0.423 $ 0.285
Net realized and unrealized gain
(loss) on investments 0.207 (0.628) 0.075 (0.430) (0.011) (0.726) 0.128++ (0.730)
------- -------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.625 $ (0.332) $ 0.499 $(0.216) $ 0.401 $(0.432) $ 0.551 $ (0.445)
------- -------- ------- ------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
From net investment income $(0.418) $ (0.296) $(0.424) $(0.214) $(0.412) $(0.294) $(0.423) $ (0.285)
In excess of net investment income (0.017) (0.052) (0.015) (0.040) (0.019) (0.054) (0.018) (0.060)
------- -------- ------- ------- ------- ------- ------- --------
Total distributions $(0.435) $ (0.348) $(0.439) $(0.254) $(0.431) $(0.348) $(0.441) $ (0.345)
NET ASSET VALUE, end of year $ 9.510 $ 9.320 $ 9.590 $ 9.530 $ 9.190 $ 9.220 $ 9.320 $ 9.210
TOTAL RETURN(1) 6.90% (3.44)% 5.52% (2.25)% 4.60% (4.56)% 6.29% 4.60)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 9,427 $ 11,732 $ 533 $ 627 $ 2,487 $ 2,989 $ 1,823 $ 3,065
Ratio of net expenses to average
daily net assets(2) 1.68% 1.49%+ 1.42% 1.59%+ 1.55% 1.64%+ 1.46% 1.69%+
Ratio of net investment income to
average daily net assets 4.59% 4.23%+ 4.56% 3.97%+ 4.62% 4.09%+ 4.81% 4.12%+
<CAPTION>
**For the periods indicated, operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income (loss) per share and the
ratios would have been:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (LOSS) PER SHARE $ 0.408 $ 0.280 $ 0.175 $(0.005) $ 0.353 $ 0.253 $ 0.303 $ 0.253
RATIOS (As a percentage of average
daily net assets):
Expenses(2) 1.80% 1.71%+ 4.09% 5.66%+ 2.21% 2.20%+ 2.82% 2.26%+
Net investment income (loss) 4.47% 4.01%+ 1.89% (0.10)%+ 3.96% 3.53%+ 3.45% 3.56%+
(See footnotes on page 7.)
<PAGE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------
LOUISIANA FUND MARYLAND FUND MISSOURI FUND NORTH CAROLINA FUND
------------------- ----------------- ----------------- ------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.470 $ 10.000 $ 9.210 $10.000 $ 9.290 $10.000 $ 9.280 $10.000
------- -------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.449 $ 0.223 $ 0.421 $ 0.277 $ 0.419 $ 0.289 $ 0.427 $ 0.295
Net realized and unrealized gain
(loss) on investments (0.011) (0.486) 0.187++ (0.731) 0.208 (0.651) 0.016 (0.666)
------- -------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.438 $ (0.263) $ 0.608 $(0.454) $ 0.627 $(0.362) $ 0.443 $ (0.371)
------- -------- ------- ------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
From net investment income $(0.449) $ (0.223) $(0.421) $(0.277) $(0.419) $(0.289) $(0.427) $ (0.295)
In excess of net investment income (0.019) (0.044) (0.017) (0.059) (0.018) (0.059) (0.016) (0.054)
------- -------- ------- ------- ------- ------- ------- --------
Total distributions $(0.468) $ (0.267) $(0.438) $(0.336) $(0.437) $(0.348) $(0.443) $ (0.349)
------- -------- ------- ------- ------- ------- ------- --------
NET ASSET VALUE, end of year $ 9.440 $ 9.470 $ 9.380 $ 9.210 $ 9.480 $ 9.290 $ 9.280 $ 9.280
======= ======== ======= ======= ======= ======= ======= ========
TOTAL RETURN(1) 4.88% (2.72)% 6.91% (4.68)% 7.08% (3.76)% 5.02% (3.85)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 2,384 $ 3,141 $ 939 $ 1,188 $ 3,163 $ 3,859 $ 6,115 $ 7,411
Ratio of net expenses to average
daily net assets(2) 1.41% 1.57%+ 1.50% 1.64%+ 1.61% 1.61%+ 1.55% 1.56%+
Ratio of net investment income to
average daily net assets 4.90% 4.16%+ 4.71% 4.07%+ 4.62% 4.20%+ 4.72% 4.19%+
<CAPTION>
**For the periods indicated, operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income (loss) per share and the
ratios would have been:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (LOSS) PER SHARE $ 0.401 $ 0.169 $ 0.238 $ 0.046 $ 0.363 $ 0.255 $ 0.403 $ 0.263
======= ======== ======= ======= ======= ======= ======= ========
RATIOS (As a percentage of average
daily net assets):
Expenses(2) 1.93% 2.77%+ 3.56% 5.07%+ 2.23% 2.19%+ 1.82% 2.01%+
Net investment income 4.38% 2.96%+ 2.65% 0.64%+ 4.00% 3.62%+ 4.45% 3.74%+
(See footnotes on page 7.)
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------------
OREGON FUND SOUTH CAROLINA FUND TENNESSEE FUND VIRGINIA FUND
------------------- ----------------- ----------------- ------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.240 $10.000 $ 9.370 $10.000 $ 9.220 $10.000 $ 9.210 $10.000
------- -------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.406 $ 0.263 $ 0.413 $ 0.205 $ 0.425 $ 0.285 $ 0.434 $ 0.296
Net realized and unrealized gain
(loss) on investments 0.221++ (0.703) 0.067++ (0.587) 0.131 (0.724) 0.138 (0.732)
------- -------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.627 (0.440) $ 0.480 (0.382) $ 0.556 $(0.439) $ 0.572 $(0.436)
LESS DISTRIBUTIONS:
From net investment income $(0.406) $(0.263) $(0.413) $(0.205) $(0.425) $(0.285) $(0.434) $(0.296)
In excess of net investment income (0.021) (0.057) (0.017) (0.043) (0.021) (0.056) (0.018) (0.058)
------- -------- ------- ------- ------- ------- ------- -------
Total distributions $(0.427) $(0.320) $(0.430) $(0.248) $(0.446) $(0.341) $(0.452) $(0.354)
------- -------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.440 $ 9.240 $ 9.420 $ 9.370 $ 9.330 $ 9.220 $ 9.330 $ 9.210
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 7.11% (4.54)% 5.38% (3.92)% 6.32% (4.54)% 6.51% (4.51)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 998 $ 1,878 $ 1,245 $ 2,309 $ 1,084 $ 1,132 $ 1,488 $ 1,315
Ratio of net expenses to average
daily net assets(2) 1.51% 1.65%+ 1.61% 1.76%+ 1.45% 1.59%+ 1.42% 1.54%+
Ratio of net investment income to
average daily net assets 4.61% 3.99%+ 4.61% 4.06%+ 4.71% 4.15%+ 4.79% 4.31%+
<CAPTION>
**For periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.261 $ 0.153 $ 0.326 $ 0.161 $ 0.292 $ 0.158 $ 0.306 $ 0.190
RATIOS (As a percentage of average daily net assets):
Expenses(2) 3.16% 3.33%+ 2.58% 2.62%+ 2.92% 3.50%+ 2.83% 3.08%+
Net investment income 2.96% 2.31%+ 3.64% 3.19%+ 3.24% 2.24%+ 3.38% 2.77%+
<CAPTION>
Footnotes:
*For the Alabama, Arkansas, Georgia, Kentucky, Louisiana, Maryland, Missouri, North Carolina, Oregon, South Carolina,
Tennessee and Virginia Funds, the Financial Highlights are for the period from the start of business, December 7, 1993,
February 9, 1994, December 7, 1993, December 7, 1993, February 14, 1993, December 10, 1993, December 7, 1993, December 7,
1993, December 28, 1993, February 14, 1994, December 9, 1993 and December 17, 1993, respectively, to August 31, 1994.
+Annualized.
++The per share amount is not in accord with the net realized gain (loss) for the period because of the timing of sales of
Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(1)Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value
on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Total Return is computed on a non-annualized basis.
(2)Includes the Fund's share of its corresponding Portfolio's allocated expenses.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- ------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are rated
at least investment grade by a major rating agency or, if unrated, determined to
be of at least investment grade quality by the Investment Adviser. Each
Portfolio has the same investment objective as its corresponding Fund.
EV CLASSIC ALABAMA MUNICIPALS FUND (the "Alabama Fund") seeks to provide current
income exempt from regular federal income tax and Alabama State personal income
taxes. The Alabama Fund seeks to meet its objective by investing its assets in
the Alabama Municipals Portfolio (the "Alabama Portfolio").
EV CLASSIC ARKANSAS MUNICIPALS FUND (the "Arkansas Fund") seeks to provide
current income exempt from regular federal income tax and Arkansas State
personal income taxes. The Arkansas Fund seeks to meet its objective by
investing its assets in the Arkansas Municipals Portfolio (the "Arkansas
Portfolio").
EV CLASSIC GEORGIA MUNICIPALS FUND (the "Georgia Fund") seeks to provide current
income exempt from regular federal income tax and Georgia State personal income
taxes. The Georgia Fund seeks to meet its objective by investing its assets in
the Georgia Municipals Portfolio (the "Georgia Portfolio").
EV CLASSIC KENTUCKY MUNICIPALS FUND (the "Kentucky Fund") seeks to provide
current income exempt from regular federal income tax and Kentucky state
personal income taxes in the form of an investment exempt from the Kentucky
intangibles tax. The Kentucky Fund seeks to meet its objective by investing its
assets in the Kentucky Municipals Portfolio (the "Kentucky Portfolio").
EV CLASSIC LOUISIANA MUNICIPALS FUND (the "Louisiana Fund") seeks to provide
current income exempt from regular federal income tax and Louisiana State
individual and corporate income taxes. The Louisiana Fund seeks to meet its
objective by investing its assets in the Louisiana Municipals Portfolio (the
"Louisiana Portfolio").
EV CLASSIC MARYLAND MUNICIPALS FUND (the "Maryland Fund") seeks to provide
current income exempt from regular federal income tax and Maryland State and
local income taxes. The Maryland Fund seeks to meet its objective by investing
its assets in the Maryland Municipals Porfolio (the "Maryland Portfolio").
EV CLASSIC MISSOURI MUNICIPALS FUND (the "Missouri Fund") seeks to provide
current income exempt from regular federal income tax and Missouri State
personal income taxes. The Missouri Fund seeks to meet its objective by
investing in the Missouri Municipals Portfolio (the "Missouri Portfolio").
EV CLASSIC NORTH CAROLINA MUNICIPALS FUND (the "North Carolina Fund") seeks to
provide current income exempt from regular federal income tax and North Carolina
State personal income taxes. The North Carolina Fund seeks to meet its objective
by investing its assets in the North Carolina Municipals Portfolio (the "North
Carolina Portfolio").
EV CLASSIC OREGON MUNICIPALS FUND (the "Oregon Fund") seeks to provide current
income exempt from regular federal income tax and Oregon State personal income
taxes. The Oregon Fund seeks to meet its objective by investing its assets in
the Oregon Municipals Portfolio (the "Oregon Portfolio").
EV CLASSIC SOUTH CAROLINA MUNICIPALS FUND (the "South Carolina Fund") seeks to
provide current income exempt from regular federal income tax and South Carolina
State personal income taxes. The South Carolina Fund seeks to meet its objective
by investing its assets in the South Carolina Municipals Portfolio (the "South
Carolina Portfolio").
EV CLASSIC TENNESSEE MUNICIPALS FUND (the "Tennessee Fund") seeks to provide
current income exempt from regular federal income tax and Tennessee State
personal income taxes. The Tennessee Fund seeks to meet its objective by
investing its assets in the Tennessee Municipals Portfolio (the "Tennessee
Portfolio").
EV CLASSIC VIRGINIA MUNICIPALS FUND (the "Virginia Fund") seeks to provide
current income exempt from regular federal income tax and Virginia state
personal income taxes. The Virginia Fund seeks to meet its objective by
investing its assets in the Virginia Municipals Portfolio (the "Virginia
Portfolio").
<PAGE>
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE WITH
ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy is a
fundamental policy of each Fund and its corresponding Portfolio, which may not
be changed unless authorized by a vote of the Fund's shareholders or that
Portfolio's investors, as the case may be.
At least 75% of the net assets of the Alabama Portfolio, Arkansas Portfolio,
Georgia Portfolio, Louisiana Portfolio, Maryland Portfolio, Missouri Portfolio,
North Carolina Portfolio, South Carolina Portfolio, Tennessee Portfolio and
Virginia Portfolio and at least 70% of the net assets of the Kentucky Portfolio
and Oregon Portfolio will normally be invested in obligations rated at least
investment grade at the time of investment (which are those rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by either
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch")) or, if unrated, determined by the Investment Adviser to be of at
least investment grade quality. The balance of each Portfolio's net assets may
be invested in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. Municipal obligations rated
Baa or BBB may have speculative characteristics. Also, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher rated
obligations. Securities rated below BBB or Baa are commonly known as "junk
bonds". A Portfolio may retain an obligation whose rating drops below B after
its acquisition if such retention is considered desirable by the Investment
Adviser. See "Risk Considerations." For a description of municipal obligation
ratings, see the Statement of Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and commercial
paper issued by a municipality for a wide variety of both public and private
purposes, the interest on which is, in the opinion of bond counsel, exempt from
regular federal income tax. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility. Municipal notes include bond anticipation, tax anticipation
and revenue anticipation notes. Bond, tax and revenue anticipation notes are
short-term obligations that will be retired with the proceeds of an anticipated
bond issue, tax revenue or facility revenue, respectively. Under normal market
conditions, a Portfolio will invest at least 65% of its total assets in
obligations issued by its respective State or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax for individual investors. As at August 31,
1995, the Portfolios had invested in such obligations as follows (as a
percentage of net assets): Alabama Portfolio (8.2%); Arkansas Portfolio (17.0%);
Georgia Portfolio (14.3%); Kentucky Portfolio (16.4%); Louisiana Portfolio
(19.5%); Maryland Portfolio (14.1%); Missouri Portfolio (9.8%); North Carolina
Portfolio (7.3%); Oregon Portfolio (15.4%); South Carolina Portfolio (18.5%);
Tennessee Portfolio (14.2%); and Virginia Portfolio (15.9%). At August 31, 1995,
the Portfolios limited their investment in obligations subject to the federal
alternative minimum tax to not more than 20% of net assets. The Portfolios are
no longer subject to such limitation. Distributions to corporate investors of
certain interest income may also be subject to the federal alternative minimum
tax.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State. Each Portfolio is, therefore, more
susceptible to factors adversely affecting issuers in one State than mutual
funds which do not concentrate in a specific State. Municipal obligations of
issuers in a single State may be adversely effected by economic developments and
by legislation and other governmental activities in that State. To the extent
that a Portfolio's assets are concentrated in municipal obligations of issuers
of a single State, that Portfolio may be subject to an increased risk of loss.
Each Portfolio may also invest in obligations issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix to this
Prospectus for a description of economic and other factors relating to the
States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its assets in municipal
obligations of the same type, including, without limitation, the following:
lease rental obligations of State and local authorities; obligations of State
and local housing finance authorities, municipal utilities systems or public
housing authorities; obligations 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 a
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and state health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its assets, more than 5% (but not
more than 25%) of its assets in the securities of any issuer. A Portfolio is
likely to invest a greater percentage of its assets in the securities of a
single issuer than would a diversified fund. Therefore, a Portfolio would be
more susceptible to any single adverse economic or political occurrence or
development affecting issuers of the relevant State's municipal obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive their
value from another instrument, security or index. In addition, each Portfolio
may temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to a Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may,
however, alter this tendency. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time. Inverse floaters
are leveraged because they provide two or more dollars of bond market exposure
for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not purchase
or sell futures contracts or related options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of margin
deposits and premiums paid on the Portfolio's outstanding positions would exceed
5% of the market value of the Portfolio's net assets. These transactions involve
transaction costs. There can be no assurance that the Investment Adviser's use
of futures will be advantageous to a Portfolio. Distributions by a Fund of any
gains realized on its corresponding Portfolio's transactions in futures and
options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest investment
grade category (Baa or BBB), lower categories or may be unrated. As indicated
above, each Portfolio may invest in municipal obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and comparable unrated
obligations. The lowest investment grade, lower rated and comparable unrated
municipal obligations in which a Portfolio may invest will have speculative
characteristics in varying degrees. While such obligations may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by uncertainties or major risk exposures to adverse
conditions. Lower rated and comparable unrated municipal obligations are subject
to the risk of an issuer's inability to meet principal and interest payments on
the obligations (credit risk) and may also be subject to greater price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated municipal obligations are also more likely to
react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Investment Adviser seeks to minimize the
risks of investing in below investment grade securities through professional
investment analysis and attention to current developments in interest rates and
economic conditions. When the Portfolio invests in such municipal obligations,
the achievement of the Portfolio's goals is more dependent on the Investment
Adviser's ability than would be the case if the Portfolio were investing in
municipal obligations in the higher rating categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio which are rated
below investment grade but which, subsequent to the assignment of such rating,
are backed by escrow accounts containing U.S. Government obligations may be
determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will not exceed 35%
of net assets. In the event the rating of an obligation held by a Portfolio is
downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with its credit
quality limitations. For a description of municipal obligation ratings, see the
Statement of Additional Information.
The net asset value of shares of a Fund will change in response to fluctuations
in prevailing interest rates and changes in the value of the securities held by
its corresponding Portfolio. When interest rates decline, the value of
securities held by a Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by a Portfolio will affect the principal value of (and possibly
the income earned on) on such obligations. In addition, the values of such
securities are affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of a security and in the ability of
the issuer to make payments of principal and interest may also affect the value
of a Portfolio's investments. The amount of information about the financial
condition of an issuer of municipal obligations may not be as extensive as that
made available by corporations whose securities are publicly traded. An
investment in shares of a Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by the Investment Adviser and its affiliates, holds a major portion or
all of such securities. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Portfolio
could find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15% of
its assets would be invested in securities that are not readily marketable. No
established resale market exists for certain of the municipal obligations in
which a Portfolio may invest. The market for obligations rated below investment
grade is also likely to be less liquid than the market for higher rated
obligations. As a result, a Portfolio may be unable to dispose of these
municipal obligations at times when it would otherwise wish to do so at the
prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option to
"call", or redeem, its securities. If an issuer were to redeem securities held
by the Portfolio during a time of declining interest rates, the Portfolio may
not be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. Each Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, a Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES
AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO
WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN
THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES WERE MADE IN A
FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT OBJECTIVES
DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE
TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
<PAGE>
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL
FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series and because the Trust can offer separate series
(such as the Funds) it is known as a "series company." Each share represents an
equal proportionate beneficial interest in a Fund. When issued and outstanding,
each Fund's shares are fully paid and nonassessable by the Trust and redeemable
as described under "How to Redeem Fund Shares." Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in a
Fund should be aware that the Fund, unlike mutual funds which directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing its assets in an interest in its corresponding Portfolio,
which is a separate investment company with an identical investment objective
(although the Fund may temporarily hold a de minimus amount of cash). Therefore,
a Fund's interest in the securities owned by its corresponding Portfolio is
indirect. In addition to selling an interest to its corresponding Fund, a
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in a Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions of the Portfolios, see "The Funds" Investment Objectives" and "How
the Funds and the Portfolios Invest their Assets". Further information regarding
investment practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as the
advantages and disadvantages of the two-tier format. The Trustees believe that
the structure offers opportunities for substantial growth in the assets of the
Portfolios, and affords the potential for economies of scale for each Fund, at
least when the assets of its corresponding Portfolio exceed $500 million.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and the
nonfundamental investment policies of each Fund and Portfolio may be changed by
the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of that Fund or the investors in that Portfolio, as the case
may be. Any such change of an investment objective will be preceded by thirty
days' advance written notice to the shareholders of the Fund or the investors in
the Portfolio, as the case may be. If a shareholder redeems shares within one
year of their purchase because of a change in the nonfundamental objective or
policies of a Fund, those shares may be subject to a contingent deferred sales
charge as described in "How to Redeem Fund Shares." In the event a Fund
withdraws all of its assets from its corresponding Portfolio, or the Board of
Trustees of the Trust determines that the investment objective of such Portfolio
is no longer consistent with the investment objective of the Fund, such Trustees
would consider what action might be taken, including investing the assets of
such Fund in another pooled investment entity or retaining an investment adviser
to manage the Fund's assets in accordance with its investment objective. A
Fund's investment performance may be affected by a withdrawal of all its assets
from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest in
a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in a Portfolio may be adversely affected by the
actions of a larger investor in the Portfolio. For example, if a large investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may become less diverse, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured mutual funds which have large or institutional
investors.
Until recently, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate investment
company are a relatively new development in the mutual fund industry and,
therefore, the Funds may be subject to additional regulations than historically
structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will terminate
120 days after the complete withdrawal of a Fund or any other investor in the
Portfolio, unless either the remaining investors, by unanimous vote at a meeting
of such investors, or a majority of the Trustees of the Portfolio, by written
instrument consented to by all investors, agree to continue the business of the
Portfolio. This provision is consistent with treatment of the Portfolios as
partnerships for Federal income tax purposes. See "Distributions and Taxes" for
further information. Whenever a Fund as an investor in a Portfolio is requested
to vote on matters pertaining to the Portfolio (other than the termination of
the Portfolio's business, which may be determined by the Trustees of the
Portfolio without investor approval), the Fund will hold a meeting of Fund
shareholders and will vote its interest in the Portfolio for or against such
matters proportionately to the instructions to vote for or against such matters
received from Fund shareholders. A Fund shall vote shares for which it receives
no voting instructions in the same proportion as the shares for which it
receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Trust and
the Trustees of each Portfolio are the same. Such procedures require each Board
to take action to resolve any conflict of interest between a Fund and its
corresponding Portfolio, and it is possible that the creation of separate Boards
may be considered. For further information concerning the Trustees and officers
of each of the Trust and the Portfolios, see the Statement of Additional
Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each Portfolio,
BMR manages each Portfolio's investments and affairs and furnishes for the use
of each Portfolio office space and all necessary office facilities, equipment
and personnel for servicing the investments of the Portfolios. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million .......................................... 0.100% 1.00%
2 $20 million but less than $40 million ...................... 0.200% 2.00%
3 $40 million but less than $500 million ..................... 0.300% 3.00%
4 $500 million but less than $1 billion ...................... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
7 $2 billion but less than $3 billion ........................ 0.200% 2.00%
8 $3 billion and over ........................................ 0.175% 1.75%
</TABLE>
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory fees
for the fiscal year ended August 31, 1994 equivalent to the annualized
percentage of average daily net assets stated below.
NET ASSETS AS OF
PORTFOLIO AUGUST 31, 1995 ADVISORY FEE
------------------------------------------------------------------------------
Alabama .................................. $118,486,053 0.40%
Arkansas ................................. 81,535,002 0.37%
Georgia .................................. 122,948,667 0.41%
Kentucky ................................. 145,268,626 0.42%
Louisiana ................................ 34,308,679 0.23%(1)
Maryland ................................. 115,004,176 0.40%
Missouri ................................. 93,162,103 0.38%
North Carolina ........................... 195,178,724 0.44%
Oregon ................................... 146,390,921 0.42%
South Carolina ........................... 61,411,668 0.33%
Tennessee ................................ 58,673,303 0.31%
Virginia ................................. 191,747,922 0.44%
(1)To enhance the net income of the Louisiana Portfolio, BMR made a reduction of
its advisory fee in the amount of $36,188.
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.
Nicole Anderes has acted as the portfolio manager of the Louisiana Portfolio
since it commenced operations. She joined Eaton Vance and BMR as a Vice
President in January 1994. Prior to joining Eaton Vance, she was a Vice
President and portfolio manager at Lazard Freres Asset Management (1992-1994)
and a Vice President and Manager -- Municipal Research at Roosevelt & Cross
(1978-1992).
Timothy T. Browse has acted as the portfolio manager of the Alabama, Arkansas,
Kentucky and Maryland Portfolios since they commenced operations. He has been a
Vice President of Eaton Vance and of BMR since 1993 and an employee of Eaton
Vance since 1992. Prior to joining Eaton Vance, he was a municipal bond trader
at Fidelity Management & Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Missouri, Oregon
and Tennessee Portfolios since they commenced operations. Ms. Clemson has been a
Vice President of Eaton Vance and BMR since 1993 and an employee of Eaton Vance
since 1985.
David C. Reilly has acted as the portfolio manager of the Georgia, North
Carolina, South Carolina and Virginia Portfolios since they commenced
operations. He has been a Vice President of Eaton Vance since 1991 and of BMR
since 1992. Prior to joining Eaton Vance, he was a Vice President and a
municipal bond analyst at Scudder, Stevens & Clark (1984-1991).
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions, BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolios and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Funds or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the administrative
services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940. Rule
12b-1 permits a mutual fund, such as a Fund, to finance distribution activities
and bear expenses associated with the distribution of its shares provided that
any payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). Each Fund's Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plans. Each Fund's Plan provides that the Fund, subject to the NASD Rule, will
pay sales commissions and distribution fees to the Principal Underwriter only
after and as a result of the sale of shares of the Fund. On each sale of Fund
shares (excluding reinvestment of distributions) a Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 6.25% of the
amount received by a Fund for each share sold and (ii) distribution fees
calculated by applying the rate of 1% over the prime rate then reported in The
Wall Street Journal to the outstanding balance of Uncovered Distribution Charges
(as described below) of the Principal Underwriter. On sales of shares made prior
to January 30, 1995, the Principal Underwriter currently pays monthly sales
commissions to a financial service firm (an "Authorized Firm") in amounts
anticipated to be equivalent to .75%, annualized, of the assets maintained in a
Fund by the customers of such Firm. On sales of shares made on January 30, 1995
and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .80% of the purchase price of the
shares sold by such Firm, and (b) monthly sales commissions approximately
equivalent to 1-1/2 of .75% of the value of shares sold by such Firm and
remaining outstanding for at least one year. The Plan is designed to permit an
investor to purchase Fund shares through an Authorized Firm without incurring an
initial sales charge and at the same time permit the Principal Underwriter to
compensate Authorized Firms in connection with the sale of Fund shares.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE FUND'S
AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, a Fund accrues
daily an amount at the rate of 1/365 of .75% of the Fund's net assets, and pays
such accrued amounts monthly to the Principal Underwriter. Each Plan requires
such accruals to be automatically discontinued during any period in which there
are no outstanding Uncovered Distribution Charges under the Plan. Uncovered
Distribution Charges are calculated daily and, briefly, are equivalent to all
unpaid sales commissions and distribution fees to which the Principal
Underwriter is entitled under a Plan less all contingent deferred sales charges
theretofore paid to the Principal Underwriter. The Eaton Vance organization may
be considered to have realized a profit under a Fund's Plan if at any point in
time the aggregate amounts of all payments made to the Principal Underwriter
pursuant to a Fund's Plan, including any contingent deferred sales charges, have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. Total expenses for this purpose will include an
allocable portion of the overhead costs of such organization and its branch
offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would result
in the incurrence and payment of increased distribution fees under the Plan.
During the fiscal year ended August 31, 1995, each Fund paid or accrued sales
commissions under its Plan equivalent to .75% (annualized) of such Fund's
average daily net assets. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter on such day calculated under
the Plan amounted to approximately $870,000 (equivalent to 9.2% of net assets on
such day) in the case of the Alabama Fund, $52,000 (equivalent to 9.7% of net
assets on such day) in the case of the Arkansas Fund, $399,000 (equivalent to
16.0% of net assets on such day) in the case of the Georgia Fund, $301,000
(equivalent to 16.5% of net assets on such day) in the case of the Kentucky
Fund, $252,000 (equivalent to 10.6% of net assets on such day) in the case of
the Louisiana Fund, $93,000 (equivalent to 9.9% of net assets on such day) in
the case of the Maryland Fund, $341,000 (equivalent to 10.8% of net assets on
such day) in the case of the Missouri Fund, $653,000 (equivalent to 10.7% of net
assets on such day) in the case of the North Carolina Fund, $224,000 (equivalent
to 2.2% of net assets on such day) in the case of the Oregon Fund, $202,000
(equivalent to 16.2% of net assets on such day) in the case of the South
Carolina Fund, $116,000 (equivalent to 10.7% of net assets on such day) in the
case of the Tennessee Fund and $163,000 (equivalent to 11.0% of net assets on
such day) in the case of the Virginia Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The Trustees of
the Trust have initially implemented this provision of each Fund's Plan by
authorizing the Fund to make monthly service fee payments to the Principal
Underwriter in amounts not expected to exceed .20% of the Fund's average daily
net assets for each fiscal year. The Fund accrues the service fee daily at the
rate of 1/365 of .20% of the Fund's net assets. On sales of shares made
prior to January 30, 1995, the Principal Underwriter currently makes monthly
service fee payments to an Authorized Firm in amounts anticipated to be
equivalent to .20%, annualized, of the assets maintained in a Fund by the
customers of such Firm. On sales of shares made on January 30, 1995 and
thereafter, the Principal Underwriter currently expects to pay to an Authorized
Firm (a) a service fee (except on exchange transactions and reinvestments) at
the time of sale equal to .20% of the purchase price of the shares sold by such
Firm, and (b) monthly service fees approximately equivalent to 1-1/2 of
.20% of the value of shares sold by such Firm and remaining outstanding for at
least one year. However, each Fund's Plan authorizes the Trustees of the Trust
on behalf of the Fund to increase payments to the Principal Underwriter,
Authorized Firms and other persons from time to time without further action by
shareholders of the Fund, provided that the aggregate amount of payments made to
such persons under the Plan in any fiscal year of the Fund does not exceed .25%
of the Fund's average daily net assets. During the first year after a purchase
of Fund shares, the Principal Underwriter will retain the service fee as
reimbursement for the service fee payment made to the Authorized Firm at the
time of sale. As permitted by the NASD Rule, all service fee payments are made
for personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales commissions and distribution fees
payable by a Fund to the Principal Underwriter, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of the Principal Underwriter. For the fiscal year ended August 31, 1995,
each Fund paid or accrued service fees under its Plan equivalent to 0.20%
(annualized) of such Fund's average daily net assets for such periods.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell a Fund's shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose representatives
sell or are expected to sell significant amounts of shares. In addition, the
Principal Underwriter may from time to time increase or decrease the sales
commissions payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant factors,
including without limitation the size of a Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares and the
amount of Uncovered Distribution Charges of the Princpal Underwriter. Each Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, no Fund is contractually obligated to continue its Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, the Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
Eaton Vance Corp. currently owns 77.3% of the outstanding stock of IBT, the
Funds' and the Portfolios' custodian, but has announced its intention to sell
such stock.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
<PAGE>
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT or as soon thereafter as possible. The number of Fund
shares to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities, divided by the applicable net asset value per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the then current market price for such securities
but does not guarantee the best available price. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Classic [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a Fund,
or their representatives, must contact Eaton Vance to determine whether the
securities are acceptable before forwarding such securities to IBT. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular Federal, State and local tax
consequences of exchanging securities for Fund shares.
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 share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to 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., a Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any applicable contingent deferred sales charge (described below) and Federal
income tax required to be withheld. Although each Fund normally expects to make
payment in cash for redeemed shares, the Trust, subject to compliance with
applicable regulations, has reserved the right to pay the redemption price of
shares of a Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by that Fund from its corresponding
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or repurchase)
will not be sent until the check (including a certified or cashier's check)
received for the shares purchased has cleared. Payment for shares tendered for
redemption may be delayed up to 15 days from the purchase date when the purchase
check has not yet cleared. Redemptions or repurchases may result in a taxable
gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the right
to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the low
account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares purchased on or after January 30, 1995
and redeemed within the first year of their purchase (except shares acquired
through the reinvestment of distributions) generally will be subject to a
contingent deferred sales charge equal to 1% of the net asset value of redeemed
shares. This contingent deferred sales charge is imposed on any redemption the
amount of which exceeds the aggregate value at the time of redemption of (a) all
shares in the account purchased more than one year prior to the redemption, (b)
all shares in the account acquired through reinvestment of distributions, and
(c) the increase, if any, of value in the other shares in the account (namely
those purchased within the year preceding the redemption) over the purchase
price of such shares. Redemptions are processed in a manner to maximize the
amount of redemption proceeds which will not be subject to a contingent deferred
sales charge. That is, each redemption will be assumed to have been made first
from the exempt amounts referred to in clauses (a), (b) and (c) above, and
second through liquidation of those shares in the account referred to in clause
(c) on a first-in-first-out basis.
In calculating the contingent deferred sales charge upon the redemption of Fund
shares acquired in an exchange for shares of a fund currently listed under "The
Eaton Vance Exchange Privilege," the purchase of Fund shares acquired in the
exchange is deemed to have occurred at the time of the original purchase of
exchanged shares.
No contingent deferred sales charge will be imposed on shares of a Fund which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will also be waived
for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a distribution from a retirement plan
qualified under Section 401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), or (3) as part of a minimum required distribution from
other tax-sheltered retirement plans. The contingent deferred sales charge will
be paid to the Principal Underwriter or the Fund. When paid to the Principal
Underwriter it will reduce the amount of Uncovered Distribution Charges
calculated under the Fund's Distribution Plan. See "Distribution Plans."
REPORTS TO SHAREHOLDERS
- ------------------------------------------------------------------------------
EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. A Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to 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 Funds'
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 in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name" account
with an Authorized Firm, all recordkeeping, transaction processing and payments
of distributions relating to the beneficial owner's account will be performed by
the Authorized Firm, and not by the Fund and its Transfer Agent. Since the Fund
will have no record of the beneficial owner's transactions, a beneficial owner
should contact the Authorized Firm to purchase, redeem or exchange shares, to
make changes in or give instructions concerning the account, or to obtain
information about the account. The transfer of shares in a "street name" account
to an account with another dealer or to an account directly with a Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Firm.
Before establishing a "street name" account with an investment firm, or
transferring the account to another investment firm, an investor wishing to
reinvest distributions should determine whether the firm which will hold the
shares allows reinvestment of distributions in "street name" accounts.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of a Fund may be exchanged for shares of one or more other funds in the
Eaton Vance Classic Group of Funds or Eaton Vance Money Market Fund, which are
distributed with a contingent deferred sales charge, on the basis of the net
asset value per share of each fund at the time of the exchange, provided that
such exchange offers are available only in States where shares of the fund being
acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
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 other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon redemption of shares
acquired in an exchange, the purchase of shares acquired in one or more
exchanges is deemed to have occurred at the time of the original purchase of the
exchanged shares.
Shares of the other funds in the Eaton Vance Classic Group of Funds (and shares
of Eaton Vance Money Market Fund acquired as the result of an exchange from an
EV Classic fund) may be exchanged for Fund shares on the basis of the net asset
value per share of each fund at the time of the exchange, but subject to any
restrictions or qualifications set forth in the current prospectus of any such
fund.
Telephone exchanges are accepted by 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 Funds, 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 FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to 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 AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See "How to Redeem Fund
Shares." A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, provided
that the reinvestment is effected within 60 days after such repurchase or
redemption and the privilege has not been used more than once in the prior 12
months. Shares are sold to a reinvesting shareholder at the next determined net
asset value following timely receipt of a written purchase order by the
Principal Underwriter or by a Fund (or by the Fund's Transfer Agent). To the
extent that any shares of a Fund are sold at a loss and the proceeds are
reinvested in shares of a Fund (or other shares of the Fund are acquired within
the period beginning 30 days before and ending 30 days after the date of the
redemption) some or all of the loss will not be allowed as a tax deduction.
Shareholders should consult their tax advisers concerning the tax consequences
of reinvestments.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the twenty-second day of each
month or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may be
considered taxable income if the Fund has taxable income during the calendar
year. Shareholders reinvesting the monthly distribution should treat the amount
of the entire distribution as the tax cost basis of the additional shares
acquired by reason of such reinvestment. Daily distribution crediting will
commence on the day that collected funds for the purchase of Fund shares are
available at the Transfer Agent. Shareholders of a Fund will receive timely
Federal income tax information as to the tax-exempt or taxable status of all
distributions made by the Fund during the calendar year. A Fund's net realized
capital gains, if any, consist of the net realized capital gains allocated to
the Fund by its corresponding Portfolio for tax purposes, after taking into
account any available capital loss carryovers; a Fund's net realized capital
gains, if any, will be distributed at least once a year, usually in December.
Each Fund intends to qualify as a regulated investment company under the Code,
and to satisfy all requirements necessary to be relieved of federal taxes on
income and gains it distributes to shareholders. In satisfying these
requirements, each Fund will treat itself as owning its proportionate share of
each of its corresponding Portfolio's assets and as entitled to the income of
the Portfolio properly attributable to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS
UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. Distributions are taxed
in the manner described above whether paid in cash or reinvested in additional
shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base for
determining the taxability of social security and railroad retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons who
are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by 1 minus the tax rate. Each
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any applicable contingent deferred sales charge at the end of the
period. Each Fund may publish annual and cumulative total return figures from
time to time. Each Fund may also quote total return for the period prior to
commencement of operations which would reflect the Portfolio's total return (or
that of its predecessor) adjusted to reflect any applicable Fund sales charge.
Each Fund may publish its distribution rate and/or effective distribution rate.
Each Fund's distribution rate is computed by dividing the most recent monthly
distribution per share annualized by the current maximum offering price per
share (net asset value). Each Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio used to annualize the most recent
monthly distribution and reinvesting the resulting amount for a full year on the
basis of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
Investors should note that a Fund's yield is calculated using a standardized
formula the income component of which is computed from the yields to maturity of
all debt obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on a Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month.
Each Fund may also publish total return figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take into
account the contingent deferred sales charge would be reduced to the extent such
charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of the Fund's current yield, total return,
distribution rate or effective distribution rate for any prior period should not
be considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses of a Fund or its corresponding Portfolio are
paid by Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there can
be no assurance that particular bond issues may not be adversely affected by
changes in economic, political or other conditions. Unless stated otherwise, the
ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
ALABAMA. Since the early 1980's, modernization of existing facilities and an
increase in direct foreign investments in the State have made the State's
manufacturing sector more competitive in domestic and international markets.
Although it remains the largest employment sector, the State economy has become
less dependent on manufacturing (pulp and paper, mining and chemicals). Strong
growth in the service and wholesale/retail trade sectors combined with recent
weakness in the manufacturing sector has enabled the economy to become more
diverse. However, its reliance on the manufacturing sector remains significantly
greater than the national average. In the past several years, the loss of
manufacturing jobs has been primarily as a result of weakness in the durable
goods sector. Overall, non-agricultural employment has steadily grown during the
past five years.
Alabama general obligations are currently rated AA, Aa and AA, by S&P, Moody's
and Fitch, respectively.
ALABAMA TAXES. In the opinion of Bradley, Arant, Rose & White, special Alabama
tax counsel to the Alabama Fund, under existing Alabama law, as long as the
Alabama Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Alabama Fund is invested in the Alabama Portfolio, and
provided that the Alabama Portfolio is invested in obligations the interest on
which would be exempt from Alabama personal income taxes if held directly by an
individual shareholder (such as obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions of
the United States), and further provided that the Alabama Portfolio is
characterized as a partnership for Federal income tax purposes, dividends
received by shareholders from the Alabama Fund that represent interest received
by the Alabama Portfolio on such obligations will be exempt from Alabama
personal income taxes. To the extent that distributions by the Alabama Fund are
derived from long-term or short-term capital gains on such obligations, or from
dividends or capital gains on other types of obligations, such distributions
will not be exempt from Alabama personal income tax.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Alabama Fund by an Alabama resident will be taken into account for
Alabama personal income tax purposes.
ARKANSAS. During the past two decades, the economy of Arkansas has shifted from
an agricultural to a light manufacturing base. The State is now moving toward a
heavier manufacturing base involving more sophisticated processes and products
such as electrical machinery, transportation equipment, fabricated metals and
electronics. The health services, wholesale/retail trade and service sectors
have also grown in recent years. The diversification of economic interests has
lessened the State's cyclical sensitivity to the impact of any single sector.
Agriculture, however, continues to be an important component of the State's
economy. In addition, the State has significant natural gas and oil producing
interests, as well as mining activities. The seasonally adjusted unemployment
rate for August, 1995 was 5.1%, compared to a national rate of 5.6%. State law
prohibits deficit spending. In 1994, the General Fund had an ending balance of
$772 million, with an operating surplus of $161 million. The State has adopted
1995-1997 biennial budget.
Arkansas general obligation bonds are rated Aa and AA by Moody's and S&P. Fitch
does not currently rate Arkansas general obligations.
ARKANSAS TAXES. In the opinion of special Arkansas tax counsel to the Arkansas
Fund, under existing Arkansas law, as long as the Arkansas Fund qualifies as a
separate "regulated investment company" under the Code, and provided the Fund is
invested in obligations the interest on which would be exempt from Arkansas
personal income taxes if held directly by an individual shareholder (such as
obligations of Arkansas or its political subdivisions, of the United States or
of certain territories or possessions of the United States), dividends received
from the Arkansas Fund that represent interest received by the Arkansas Fund on
such obligations will be exempt from Arkansas personal income taxes. To the
extent that distributions by the Arkansas Fund are derived from long-term or
short-term capital gains on such obligations, or from dividends or capital gains
on other types of obligations, such distributions will not be exempt from
Arkansas personal income tax. The opinion addresses the tax consequences when
the Arkansas Fund invests directly in these obligations. The application of
these consequences to the Arkansas Fund when investing in interests of another
registered investment company was the subject of a favorable opinion from
Revenue Counsel for the Arkansas Department of Finance and Administration for a
similar Eaton Vance fund.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Arkansas Fund by an Arkansas resident will be taken into account for
Arkansas personal income tax purposes.
GEORGIA. Georgia has a generally sound, well-diversified economy, which has
performed relatively well during recent years. According to the Department of
Labor for the State of Georgia, the unemployment rate of the civilian labor
force in the State as of July 1995 was 5.6% compared to 5.9% for the nation.
Actual revenues of the State for fiscal year 1994 increased 13.8% over revenue
collections for the previous fiscal year. Estimated revenue collections for the
fiscal year ending June 30, 1995 increased 6.3% over actual revenue collections
for fiscal 1994. Total projected revenues for fiscal year 1996 are approximately
$10.7 million, a 7.2% increase over the total projected revenues for fiscal year
1995. This improvement is expected to continue for most economic sectors as the
1996 Summer Olympics draw near. The fiscal 1996 budget includes approximately
$76,663,963 to help Georgians recover from the 1994 summer flooding and tropical
storm disasters which is not likely to affect the market value of Georgia
obligations or the ability of the State or its instrumentalities to pay interest
and repay principal on Georgia obligations in a timely manner.
Georgia general obligations are rated "AA+," "Aaa" and "AA" by S&P, Moody's and
Fitch, respectively. Both S&P and Fitch view the State as stable.
GEORGIA TAXES. In the opinion of Powell, Goldstein, Frazer & Murphy, special tax
counsel to the Georgia Fund, under existing law, shareholders who are otherwise
subject to the Georgia personal or corporate income tax will not be subject to
Georgia income tax on distributions with respect to shares of the Georgia Fund
to the extent such distributions represent "exempt-interest dividends" for
Federal income tax purposes that are attributable to interest on obligations
issued by or on behalf of the State of Georgia or its political subdivisions,
and by the governments of Puerto Rico, the U.S. Virgin Islands and Guam to the
extent that such obligations are exempt from State income tax pursuant to
Federal law. Distributions, if any, derived from capital gain or other sources
generally will be taxable to such shareholders of the Georgia Fund for Georgia
income tax purposes. Shareholders who are subject to the Georgia corporate net
worth a franchise tax that is based on net worth, will be subject to such tax
with respect to ownership of shares of the Georgia Fund and distributions with
respect thereto.
The application of the Georgia intangible personal property tax to the ownership
of shares of the Georgia Fund is not clear. Although obligations or evidences of
debt of the United States and of the State of Georgia, its political
subdivisions and public institutions are exempt from the Georgia intangible
personal property tax, the Georgia Department of Revenues has taken the position
that shares in a municipal bond fund are deemed to be taxable intangible
property separate from an ownership interest in the underlying obligations.
Under such an analysis, shareholders of the Georgia Fund who are otherwise
subject to the Georgia intangible personal property tax would be subject to such
tax with respect to ownership of shares of the Georgia Fund (without any
exemption for the underlying United States or Georgia obligations), but at the
rate of 10 cents per $1,000 applicable to "other intangible property" rather
than at the higher rate of $1 per $1,000 imposed on "stocks." All shareholders
should consult their tax advisors regarding the possible intangible personal
property tax consequences of ownership of shares in the Georgia Fund.
KENTUCKY. Kentucky's economy, once dominated by coal, horses, bourbon, and
tobacco, has attained substantial diversification during the past decade into
the manufacturing and service sectors, including particularly air
transportation, health care and business services, and retail trade. Kentucky
still ranks first among the states in total tonnage of coal produced and second
in the total cash value of tobacco raised. The state's leading manufactured
products now include automobiles and automotive parts, industrial machinery,
consumer appliances, and apparel. Kentucky's horse breeding and racing industry,
showcased by the Kentucky Derby, as well as an extensive system of state parks,
have contributed to a growing tourism industry within the State. As of August
1995, Kentucky's unemployment rate was 4.7% compared to the national average of
5.6%.
The Commonwealth of Kentucky's financial condition has steadily improved during
the last three years. State General Fund revenue grew by 10.9% in the fiscal
year 1995 to a total of $5.15 billion. To avoid the need for state budget cuts
in the event revenues do not meet expectations, a Budget Reserve Trust Fund was
established with a $90 milion deposit in fiscal year 1994. An additional $10
million was deposited into the Budget Reserve Trust Fund in fiscal year 1995,
bringing the balance to the targeted level of $100 million.
Because the Kentucky Constitution requires a vote of a majority of the
electorate to approve the issuance of State general obligation indebtedness,
none of the outstanding indebtedness of the Commonwealth of Kentucky is general
obligation indebtedness but instead is either debt payable only from revenues
produced by the particular project or lease revenue indebtedness subject to
legislative appropriation for the payment of debt service during each fiscal
biennium of the Commonwealth. In September 1994 S&P upgraded the rating of the
State's appropriation-backed debt from A to A+. Moody's and Fitch rate the
State's appropriation-backed debt as A and A+, respectively.
KENTUCKY TAXES. In the opinion of Wyatt, Tarrant & Combs, special Kentucky tax
counsel to the Kentucky Fund, shareholders of the Kentucky Fund who otherwise
are subject to individual or corporate income taxes of the Commonwealth of
Kentucky will not be subject to such taxes on distributions with respect to
their shares in the Kentucky Fund to the extent that such distributions are
attributable to interest on obligations of the Commonwealth of Kentucky or its
political subdivisions or on obligations of the United States, the governments
of Puerto Rico, the U.S. Virgin Islands or Guam. To the extent that
distributions from the Kentucky Fund are included in a corporate shareholder's
surplus, they will be subject to the Kentucky license (franchise) tax that is
based on capital employed. To the extent that the Kentucky Portfolio's holdings
consist of obligations of the Commonwealth of Kentucky or its political
subdivisions or instrumentalities and the balance are obligations of the United
States, shares in the Kentucky Fund will be exempt from the Kentucky Intangibles
Tax. Shareholders will be required to include the entire amount of capital gain
dividends in income to the same extent for state income tax purposes as for
Federal income tax purposes.
Many local governments in Kentucky, including Louisville, Jefferson County,
Lexington-Fayette County, Bowling Green and Covington, impose taxes on the net
profits of businesses operating (in any form, including sole proprietorships)
within the local jurisdiction. Such taxes should not be imposed on income
derived from an investment in the Kentucky Fund. However, because of differences
in the language of these laws, it is not possible to address their specific
impact.
LOUISIANA. The State has experienced operating budget deficits in three of the
last seven fiscal years. Since 1988, the gap between General Fund expenditures
and recurring revenues has widened for a variety of reasons: new expenditures
have been phased in; new tax exemptions have been implemented; the federal
government has issued costly mandates, most significantly in the Medicaid
program; and revenues once available to the General Fund have in recent years
been dedicated for specific purposes. Furthermore, the State's tax base (which
is comprised in part of mineral revenues and volume-based taxes, such as those
on tobacco, beer, and liquor) is inherently inelastic, i.e., its nominal growth
rate does not match or exceed the growth rate of the economy.
The State ended the Fiscal Period 1992-93 with a positive undesignated fund
balance in its General Fund of $101 million. During 1994, $30.6 million of the
surplus funds were utilized to cover known shortfalls in current year program
operations. The State ended the Fiscal Period 1993-94 with an operating surplus
of $129 million. This amount together with the prior year fund balance of $101
million and reserve changes leaves an unreserved-undesignated General Fund fund
balance of $212.9 million. For fiscal 1996, the State will receive a
significantly smaller amount of federal funding for its health care programs.
The State faces a large gap for the 1996 budget. It is uncertain how this fiscal
imbalance will be resolved or how it will impact the creditworthiness of the
State and its outstanding and related debt.
As of the date of this Prospectus, general obligations of Louisiana are rated A-
(with a negative outlook) and Baa1 by S&P and Moody's, respectively.
LOUISIANA TAXES. In the opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P., special Louisiana tax counsel to the Louisiana Fund, under
existing Louisiana law as long as: (i) the Louisiana Fund qualifies as a
separate "regulated investment company" under the Code; (ii) the Louisiana
Portfolio will be treated as a partnership for Federal and state tax purposes;
and (iii) the Louisiana Fund receives income from obligations, the interest on
which would be exempt from Louisiana individual and corporate income taxes if
held directly by an individual shareholder (such as obligations of Louisiana or
its political subdivisions, of the United States or of certain territories or
possessions of the United States), the dividends received from the Louisiana
Fund that represent interest received by the Louisiana Fund on such obligations
will be exempt from Louisiana individual and corporate income taxes. To the
extent that distributions by the Louisiana Fund are derived from long-term or
short-term capital gains on such obligations, or from dividends or capital gains
on other types of obligations, such distributions will not be exempt from
Louisiana individual and corporate income taxes.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Louisiana Fund by a Louisiana resident will be taken into account for
Louisiana individual and corporate income tax purposes. Distributions from and
investments in the Louisiana Fund by corporate shareholders who are otherwise
subject to the Louisiana corporate franchise tax will be included in the capital
of such corporations for Louisiana franchise tax purposes.
MARYLAND. Maryland has a diverse economy with government, services and mining,
and manufacturing and trade each accounting for approximately 20%, 31% and 32%
of employment, respectively. In recent years financial operations of the State
have concluded in ending surpluses, although in the early 1990s various cost
containment and tax revenue measures were required. State revenues are largely
dependent on income and sales and use taxes and, relatedly, on general levels of
employment, personal income growth and consumer spending. The national slowdown,
beginning in 1990, impacted the State with total employment declining slightly
in the early 1990s but recovering commencing in 1992. Unemployment in Maryland
for July 1995 was 5.0% versus the national rate of 5.9%.
Generally, Maryland has been among the most heavily indebted of the states. In
recent years increases in State general obligation debt have been controlled.
Since 1991, State tax-supported debt service and debt outstanding have been less
than 3.07% of personal income and 6.74% of State revenues, respectively.
Including local government debt, debt service as a percentage of total revenues
has risen from 8.88% in 1991 to 9.67% in 1994. It should be noted that the
creditworthiness of obligations issued by local Maryland issuers and State
revenue obligations may vary considerably from the creditworthiness of general
obligation bonds issued by the State, and that there is no obligation on the
part of the State to make payment on such local obligations in the event of
default.
The State of Maryland's general obligation bonds are rated AAA, Aaa and AAA, by
S&P, Moody's and Fitch, respectively. Both S&P and Fitch have a stable outlook
for the State.
MARYLAND TAXES. In the opinion of Piper & Marbury, L.L.P., special Maryland tax
counsel to the Maryland Fund, so long as the Maryland Fund qualifies to be taxed
as a regulated investment company in the manner set forth in Section 852(b) of
the Code holders of the Maryland Fund who are individuals, estates or trusts and
who are otherwise subject to Maryland State and local individual income taxes
will not be subject to such taxes on Maryland Fund dividends to the extent that
(a) such dividends qualify as exempt-interest dividends of a regulated
investment company under Section 852(b)(5) of the Code, which are attributable
to interest on tax-exempt obligations of the State of Maryland or its political
subdivisions or authorities, or obligations issued by the government of Puerto
Rico, U.S. Virgin Islands or Guam or their authorities ("Maryland tax-exempt
obligations"), (b) such dividends are attributable to interest on obligations of
the U.S. Government or obligations issued or guaranteed by the U.S. Government
and its agencies, instrumentalities and authorities ("U.S. obligations") or (c)
such dividends are attributable to gain realized by the Maryland Fund as a
result of the sale or exchange by the Maryland Portfolio of a bond issued by the
State of Maryland or a political subdivision thereof.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland State and local individual income
taxes.
Maryland presently includes in Maryland taxable income a portion of certain
items of tax preferences as defined in the Code. Interest paid on certain
private activity bonds constitutes such a tax preference. Accordingly, up to 50%
of any distributions of the Maryland Fund attributable to such private activity
bonds may not be exempt from Maryland State and local individual income taxes.
The Maryland Portfolio has no present intention of investing in such securities.
Shareholders of the Maryland Fund that are corporations otherwise subject to
Maryland corporate income tax will not be subject to such tax on Maryland Fund
dividends to the extent that (a) such dividends qualify as exempt-interest
dividends under Section 852(b)(5) of the Code which are attributable to Maryland
tax-exempt obligations or (b) such dividends are attributable to interest on
U.S. obligations.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland corporate income tax.
Shareholders of the Maryland Fund that are financial institutions otherwise
subject to Maryland financial institution franchise taxes will probably be
subject to such taxes on all distributions received from the Maryland Fund
(including exempt-interest dividends).
Interest on indebtedness incurred or continued (directly or indirectly) by a
shareholder of the Maryland Fund to purchase or carry shares of the Maryland
Fund will not be deductible for Maryland State and local individual income tax
purposes or corporate income tax purposes to the extent such interest is
allocable to exempt-interest dividends.
Shares of the Maryland Fund will not be subject to the Maryland personal
property tax.
MISSOURI. The State has a well balanced economy that approximates the national
economy. As a result, the State unemployment rate has typically remained close
to the national average. The civilian unemployment rate for August, 1995 was
5.0% as compared to the September 1994 level of 3.9%. During the past several
years, the local defense and automotive industries have experienced weakness
partially contributing to the loss of 64,000 manufacturing jobs.
In the early 1990s, the State had operating deficits resulting from lower
collections than budgeted due to the recession. The State's financial operations
have been pressured by the cost associated with the settlement of the
desegregation lawsuit involving the Kansas City and St. Louis school districts.
For fiscal 1995, the cost of the settlement was $315 million, approximately 7%
of the General Fund budget. A recent Supreme Court decision favorable to the
State may decrease the level of State funding required in the future, but the
impact of this decision is uncertain. Economic reversals in either of the Kansas
City or St. Louis metropolitan areas, whose Missouri portions together contain
approximately half of the State's population, would have a major impact on the
State's overall economic condition.
An amendment to the State Constitution limits the amount of state taxes which
may be imposed by the General Assembly, as well as the amount of local taxes,
licenses and fees which can be imposed by local governments in any fiscal year.
The details of the amendment are complex and clarification by subsequent
legislation or judicial decision may be necessary.
As of the date of this Prospectus, Missouri's general obligation of debt is
rated AAA, Aaa and AAA, by S&P, Moody's and Fitch, respectively.
MISSOURI TAXES. In the opinion of Bryan Cave, LLP, special Missouri tax counsel
to the Missouri Fund, so long as the Missouri Fund qualifies for Federal income
taxation as a regulated investment company and the Missouri Portfolio is treated
as a partnership for Federal tax purposes, dividends distributed to individual
shareholders of the Missouri Fund will be exempt from the Missouri personal
income tax imposed by Chapter 143 of the Missouri Revised Statutes to the extent
that such dividends qualify as exempt interest dividends of a regulated
investment company under Section 852(b)(5) of the Code and are derived form
interest on obligations of the United States, its authorities, commissions,
instrumentalities, possessions or territories to the extent exempt from Missouri
income taxes under the laws of the United States (including Puerto Rico, Guam
and the U.S. Virgin Islands), or of the State of Missouri or its political
subdivisions. Capital gain dividends, as defined in Section 852(b)(3) of the
Code, distributable by the Missouri Fund to individual resident shareholders of
the Missouri Fund, to the extent includable in Federal adjusted gross income,
will be subject to Missouri income taxation. Shares in the Missouri Fund are not
subject to Missouri personal property taxes.
The Missouri Fund will notify its shareholders within 60 days after the close of
the year as to the amount of interest dividend from Missouri obligations which
is exempt from Missouri personal income taxation.
NORTH CAROLINA. North Carolina has an economy largely dependent on textile and
furniture manufacturing, and agriculture, although finance, services and trade
are becoming increasingly important. Manufacturing, which continues to be far
more important in North Carolina than in the nation, has been adversely affected
by international competition. Tobacco farming continues to be affected by
Federal legislation and regulatory measures and by international competition.
State personal wealth levels remain well below those of the nation.
The North Carolina State Constitution requires that the total expenditures of
the State for a fiscal period shall not exceed the total of receipts during the
fiscal period and the surplus remaining in the State Treasury at the beginning
of the period. Apparently due to both increased tax and fee revenue and the
previously enacted spending reductions, the State had a budget surplus of
approximately $887 million at the end of fiscal 1993-94. After review of the
1994-95 continuation budget adopted in 1993, the General Assembly approved
spending expansion funds, in part to restore certain employee salaries to
budgeted levels, which amounts had been deferred to balance the budgets in
1989-1993, and to authorize funding for new initiatives for economic
development, education, human services and environmental programs.
General obligations of the State of North Carolina are rated Aaa, AAA and AAA by
Moody's, S&P and Fitch, respectively. In July, 1992, S&P revised its outlook for
the State's general obligations from "Negative" to "Stable". Fitch views the
State's credit trend as "Stable".
NORTH CAROLINA TAXES. In the opinion of Hunton & Williams, special North
Carolina tax counsel to the North Carolina Fund, distributions from the North
Carolina Fund will not be subject to North Carolina individual, trust, or estate
income taxation to the extent that such distributions are either (i) excluded
from Federal gross income and represent interest the North Carolina Fund, either
directly or through the North Carolina Portfolio, receives on obligations of
North Carolina or its political subdivisions, nonprofit educational institutions
organized or chartered under the laws of North Carolina, or Puerto Rico, U.S.
Virgin Islands, or Guam or (ii) represent interest the North Carolina Fund,
either directly or through the Portfolio, receives on direct obligations of the
United States. These North Carolina income tax exemptions will be available only
if the North Carolina Fund complies with the requirement of the Code that at
least 50% of the value of its assets at the close of each quarter of its taxable
years is invested, either directly or through the North Carolina Portfolio, in
state, municipal, or other obligations described in (S)103(a) of the Code. The
North Carolina Fund intends to comply with that requirement.
Any capital gains distributed by the North Carolina Fund (except for capital
gain attributable to the sale by the North Carolina Fund or the North Carolina
Portfolio of an obligation the profit from which is exempt by North Carolina
statute) or gains realized by the shareholder from a redemption or sale of
shares of the North Carolina Fund will be subject to North Carolina individual,
trust, or estate income taxation.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the North Carolina Fund to purchase or carry shares of the North Carolina Fund
generally will not be deductible for North Carolina income tax purposes.
The opinion of Hunton & Williams is based on a ruling of the North Carolina
Department of Revenue obtained by Hunton & Williams on behalf of a fund
basically identical to the North Carolina Fund. That ruling is subject to
change.
OREGON. Oregon remains slightly more sensitive to economic cycles than the
national average due to the forest products component of its economy. Protection
of the spotted owl under the Endangered Species Act may cause timber harvest on
Federal lands to be reduced significantly. In addition to the general adverse
economic impact that would be caused by harvest reductions, a number of counties
that receive substantial revenues directly from Federal timber sales would
suffer revenue losses. In addition, recent economic projections indicate a
slowing of the growth, particularly in the areas of lumbering, construction, and
retail trade. The State has committed itself to greater diversification of the
economy by pursuing more foreign trade in the considerable markets of the
Pacific Rim countries and the location of high technology industries in Oregon.
In September 1994, Oregon's unemployment rate was 4.7%, compared to the nation's
5.9% rate.
As of the date of this Prospectus, Oregon's general obligation debt is rated
AA-, Aa and AA, by S&P, Moody's and Fitch, respectively. S&P revised the outlook
of Oregon's debt from Stable to Negative as a result of the increased costs
imposed by a constitutional property tax limitation ("Ballot Measure 5") adopted
by votes in 1990.
OREGON TAXES. In the opinion of Stoel, Rives, Boley, Jones & Grey, special
Oregon tax counsel to the Oregon Fund, individual shareholders of the Oregon
Fund will not be subject to Oregon personal income taxes on distributions
received from the Oregon Fund to the extent such distributions are attributable
to interest on tax-exempt obligations of the State of Oregon and its political
subdivisions and authorities or on tax-exempt obligations issued by the
Governments of Puerto Rico, the U.S.Virgin Islands and Guam, and represent
exempt interest dividends for Federal income tax purposes (Oregon tax-exempt
obligations).
Other distributions from the Oregon Fund, including dividends attributable to
obligations of issuers in other states and all long-term and short-term capital
gains, will not be exempt from personal income taxes in Oregon. The Oregon Fund
will report annually to its shareholders the percentage and source, on a
state-by-state basis, of interest income received by the Oregon Fund on
municipal bonds during the preceding year.
No portion of distributions from the Oregon Fund are exempt from Oregon excise
tax on corporations. However, shares of the Oregon Fund are not subject to
Oregon property taxes.
SOUTH CAROLINA. The effect of the prolonged national recession on the State's
fiscal position has been significant, though in the past few years the State has
rebuilt its General Reserve Fund. Since the start of the 1993 fiscal year, South
Carolina has been forced to deal with revenue shortfalls. In July 1992, original
revenue estimates were revised downward by $195 million to $3.6 billion for
fiscal year 1993. The State responded by cutting appropriations including
recurring and non-recurring spending and ended the fiscal year with a $151
million surplus. Actual budgetary General Fund revenues and expenditures for
fiscal year 1994 were $4.021 billion and $3.776 billion, respectively. There was
a $248 million surplus of which $43.3 million was deposited into the General
Reserve Fund bringing its total to $110 million. Fiscal 1995 had actual budgeted
General Fund revenues and expenditures of $4.233 billion and $3.984 billion,
respectively. Fiscal 1995 ended with a General Fund surplus of $248 million of
which $10.5 million was deposited into the General Reserve Fund fully funding it
to $120.7 million. No new taxes were introduced. $4.133 billion has been
budgeted for fiscal 1996. Once again no new taxes are in the budget.
Although dominated by the textile industry, South Carolina's economic base has
diversified in recent years as the trade and service sectors developed. With
increased added development in the durable goods manufacturing industries, South
Carolina's economy now resembles more closely that of the United States. For
August, 1995, unemployment in South Carolina was 4.9% compared with the national
rate of 5.6%.
South Carolina general obligations are rated Aaa, AA+ (positive), AAA (stable),
by Moody's, S&P and Fitch, respectively.
SOUTH CAROLINA TAXES. Nelson Mullins Riley & Scarborough, L.L.P., special South
Carolina tax counsel to the South Carolina Fund, has obtained the issuance of a
private letter ruling from the South Carolina Department of Revenue and Taxation
(the "S.C. Tax Ruling"). The S.C. Tax Ruling provides that, under existing South
Carolina law, as long as the South Carolina Fund qualifies as a separate
"regulated investment company", shareholders of the South Carolina Fund will not
be required to include in their South Carolina gross income distributions from
the South Carolina Fund to the extent such distributions qualify as
"exempt-interest dividends" as defined in the Code, which are directly
attributable to interest received by the South Carolina Fund on tax-exempt
obligations issued by the State of South Carolina or its political subdivisions
or the United States. In the event the South Carolina Fund fails to qualify as a
separate "regulated investment company," the foregoing exemption may be
unavailable or substantially limited. The S.C. Tax Ruling addresses the South
Carolina tax consequences when the South Carolina Fund invests directly in these
obligations. In addition, the S.C. Tax Ruling favorably addresses consequences
to the South Carolina Fund, under existing South Carolina law, to the extent the
South Carolina Fund invests in interests of another registered investment
company.
Capital gains distributed by the South Carolina Fund, or gains realized by a
shareholder from a redemption or sale of shares of the South Carolina Fund, will
be subject to South Carolina income taxes.
As intangible personal property, the shares of the South Carolina Fund are
exempt from any and all ad valorem taxation in South Carolina.
TENNESSEE. Historically, the Tennessee economy has been characterized by a
greater concentration in manufacturing employment than the U.S. as a whole. The
economy is, however, undergoing a structural change through the increase in
service sector employment. From the third quarter of 1992 to the third quarter
of 1993, 40.9% of employment growth occurred in the services sector. The March,
1994 seasonally adjusted unemployment rate was 4.7%, as compared with a national
unemployment rate of 5.9%.
Tennessee's financial operations are considerably different than most other
states because there is no state payroll income tax. This factor, together with
the State's reliance on the sales tax for approximately 55% of General Fund
receipts, exposes total State tax collections to considerably more volatility
than would otherwise be the case and, in the event of an economic downswing,
could effect the State's ability to pay principal and interest in a timely
manner. Under the State constitution, no debt may be authorized for the current
operation of any State service or program unless repaid within the fiscal year
of issuance. Operating surpluses for 1992 and 1993 have built up the General
Fund balance to $150.1 million for 1993 from $7.3 million for 1991. For the
fiscal year 1993, a 0.5% increase in the sales tax rate was enacted and
dedicated towards the implementation of certain educational reforms enacted by
the legislature.
Tennessee's general obligation debt is rated AA+, Aaa and AAA, by S&P, Moody's
and Fitch, respectively. S&P has a positive outlook for the State.
TENNESSEE TAXES. In the opinion of Hunton & Williams, special Tennessee tax
counsel to the Tennessee Fund, individual shareholders of the Tennessee Fund
will not be subject to Tennessee individual income tax on distributions received
from the Tennessee Fund to the extent such distributions are attributable to
interest the Tennessee Fund, either directly or through the Tennessee Portfolio,
receives on (i) bonds or securities of the U.S. Government or any agency or
instrumentality thereof, (ii) bonds of the State of Tennessee or any county,
municipality or political subdivision thereof, including any agency, board,
authority or commission, or (iii) bonds of Puerto Rico, U.S. Virgin Islands or
Guam.
The opinion of Hunton & Williams is based on a ruling of the Tennessee
Department of Revenue obtained by Hunton & Williams on behalf of a fund
basically identical to the Tennessee Fund. That ruling is subject to change. The
Tennessee Fund will report annually to its shareholders the percentage and
source, on a state-by-state basis, of interest income received by the Tennessee
Fund on municipal bonds during the preceding year.
On March 16, 1994, the Tennessee Fund received a letter ruling from the
Department of Revenue of the State of Tennessee to the effect that distributions
of capital gains from the Tennessee Fund attributable to tax-exempt securities
are exempt from Tennessee income tax. Tennessee Fund management believes that
Eaton Vance is the only mutual fund sponsor that has obtained such a ruling. The
ruling is subject to change under certain conditions.
VIRGINIA. The Constitution of Virginia requires a balanced budget and limits the
ability of the Commonwealth to create debt. General obligation debt may be
incurred to meet short-term needs, to finance capital projects and, under less
stringent restrictions, to finance revenue-producing capital projects. Also,
"special fund" revenue bonds, to which the constitutional debt restrictions do
not apply and which are not supported by the full faith and credit of the
Commonwealth, may be issued to finance qualifying Commonwealth revenue projects.
General obligations of cities, towns and counties are payable from the general
revenues of the entity, including ad valorem tax revenues on property within the
jurisdiction. Revenue obligations issued by other entities are customarily
payable only from revenues from the particular project or projects involved.
The economy of Virginia is based primarily on manufacturing, the government
sectors, agriculture, mining and tourism, and unemployment rates are typically
below the national average. June 1995 unemployment was 4.4% versus a national
rate of 5.6%. The Commonwealth has a long history of fiscal stability, due in
large part to a conservative financial philosophy, broad-based employment
opportunities and diverse source of revenue. In the past decade, however, the
Commonwealth has experienced cycles of financial stringency. No significant new
taxes or increases were enacted by the General Assembly at the 1995 session.
As a result of litigation involving proceedings before the United States Supreme
Court, the Commonwealth may be obligated to refund tax payments made by federal
pensioners of up to $707.5 million. Legislation has been enacted to effect a
settlement of the litigation, but the claimants have not accepted its terms.
General obligations of Virginia are rated Aaa, AAA and AAA by Moody's, S&P and
Fitch, respectively.
VIRGINIA TAXES. In the opinion of Hunton & Williams, special Virginia tax
counsel to the Virginia Fund, under existing Virginia law, distributions from
the Virginia Fund will not be subject to Virginia individual, trust, estate, or
corporate income taxation to the extent that such distributions are either (i)
excluded from federal gross income and attributable to interest the Virginia
Fund, either directly or through the Virginia Portfolio, receives on obligations
of Virginia, its political subdivisions, or its instrumentalities, or Puerto
Rico, U.S. Virgin Islands, or Guam or (ii) attributable to interest the Virginia
Fund, either directly or through the Portfolio, receives on direct obligations
of the United States. These Virginia income tax exemptions will be available
only if the Virginia Fund complies with the requirement of the Code that at
least 50% of the value of its assets at the close of each quarter of its taxable
year is invested, either directly or through the Portfolio, in state, municipal,
or other obligations described in (S)103(1) of the Code. The Virginia Fund
intends to comply with that requirement.
Other distributions from the Virginia Fund, including capital gains, generally
will not be exempt from Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry shares of the Virginia Fund generally will not be deductible
for Virginia income tax purposes.
Neither the Trust nor the Virginia Fund will be subject to any Virginia
intangible property tax on any obligations in the Virginia Portfolio. In
addition, shares of the Virginia Fund held for investment purposes will not be
subject to any Virginia intangible personal property tax.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for June, 1995 was approximately 13.9%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance on
nonrecurring revenues and economic weakness led S&P to change its outlook from
stable to negative.
<PAGE>
[LOGO]
EV CLASSIC MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
PROSPECTUS
JANUARY 1, 1996
EV CLASSIC ALABAMA MUNICIPALS FUND
EV CLASSIC ARKANSAS MUNICIPALS FUND
EV CLASSIC GEORGIA MUNICIPALS FUND
EV CLASSIC KENTUCKY MUNICIPALS FUND
EV CLASSIC LOUISIANA MUNICIPALS FUND
EV CLASSIC MARYLAND MUNICIPALS FUND
EV CLASSIC MISSOURI MUNICIPALS FUND
EV CLASSIC NORTH CAROLINA MUNICIPALS FUND
EV CLASSIC OREGON MUNICIPALS FUND
EV CLASSIC SOUTH CAROLINA MUNICIPALS FUND
EV CLASSIC TENNESSEE MUNICIPALS FUND
EV CLASSIC VIRGINIA MUNICIPALS FUND
EV CLASSIC
MUNICIPAL FUND
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(617) 482-8260
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
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-TFC1/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV MARATHON
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
<TABLE>
<C> <C>
EV MARATHON ALABAMA MUNICIPALS FUND EV MARATHON MISSOURI MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND EV MARATHON VIRGINIA MUNICIPALS FUND
</TABLE>
THE EV MARATHON MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THEIR
RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS' INVESTMENT OBJECTIVES" IN
THIS PROSPECTUS. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED
OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE
AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO
OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A
SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future
reference. A Statement of Additional Information dated January 1, 1996 for
each 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
Funds' principal underwriter, Eaton Vance Distributors, Inc. (the "Principal
Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone (800) 225-6265).
The Portfolios' investment adviser is Boston Management and Research (the
"Investment Adviser"), a wholly-owned subsidiary of Eaton Vance Management,
and Eaton Vance Management is the administrator (the "Administrator") of the
Funds. The offices of the Investment Adviser and the Administrator are located
at 24 Federal Street, Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
<TABLE>
<C> <C>
PAGE PAGE
Shareholder and Fund Expenses .............. 2 How to Redeem Fund Shares .................. 22
The Funds' Financial Highlights ............ 5 Reports to Shareholders .................... 23
The Funds' Investment Objectives ........... 11 The Lifetime Investing Account/Distribution
How the Funds and the Portfolios Options .................................. 23
Invest their Assets ...................... 12 The Eaton Vance Exchange Privilege ......... 24
Organization of the Funds and the Portfolios 15 Eaton Vance Shareholder Services ........... 25
Management of the Funds and the Portfolios.. 17 Distributions and Taxes .................... 26
Distribution Plans ......................... 19 Performance Information .................... 27
Valuing Fund Shares ........................ 20 Appendix -- State Specific Information ..... 28
How to Buy Fund Shares ..................... 21
</TABLE>
- -------------------------------------------------------------------------------
PROSPECTUS DATED JANUARY 1, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
Range of Declining Contingent Deferred Sales Charges Imposed on Redemption during
the First Seven Years (as a percentage of redemption proceeds exclusive of all
reinvestments and capital appreciation in the account) 5.00%-0%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
--------------------------------------------------------------------------------------------------------------
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.40% 0.37% 0.41% 0.42%
Rule 12b-1 Distribution (and Service) Fees 0.89 0.89 0.89 0.89
Other Expenses 0.22 0.24 0.19 0.21
---- ---- ---- ----
Total Operating Expenses 1.51% 1.50% 1.49% 1.52%
==== ==== ==== ====
<CAPTION>
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:
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 65 $ 65 $ 65 $ 65
3 Years 88 87 87 88
5 Years 102 102 101 103
10 Years 180 179 178 181
<CAPTION>
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no
redemptions:
<S> <C> <C> <C> <C>
1 Year $ 15 $ 15 $ 15 $ 15
3 Years 48 47 47 48
5 Years 82 82 81 83
10 Years 180 179 178 181
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
--------------------------------------------------------------------------------------------------------------
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.12% 0.40% 0.38% 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.87 0.89 0.90 0.90
Other Expenses (after any applicable expense
reduction) 0.32 0.21 0.25 0.17
---- ---- ---- ----
Total Operating Expenses 1.31% 1.50% 1.53% 1.51%
==== ==== ==== ====
<CAPTION>
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:
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 63 $ 65 $ 66 $ 65
3 Years 82 87 88 88
5 Years 92 102 103 102
10 Years 158 179 182 180
<CAPTION>
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no
redemptions:
<S> <C> <C> <C> <C>
1 Year $ 13 $ 15 $ 16 $ 15
3 Years 42 47 48 48
5 Years 72 82 83 82
10 Years 158 179 182 180
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
--------------------------------------------------------------------------------------------------------------
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.42% 0.33% 0.31% 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.89 0.88 0.87 0.89
Other Expenses 0.22 0.28 0.29 0.17
---- ---- ---- ----
Total Operating Expenses 1.53% 1.49% 1.47% 1.50%
==== ==== ==== ====
<CAPTION>
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:
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 66 $ 65 $ 65 $ 65
3 Years 88 87 86 87
5 Years 103 101 100 102
10 Years 182 178 176 179
<CAPTION>
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no
redemptions:
<S> <C> <C> <C> <C>
1 Year $ 16 $ 15 $ 15 $ 15
3 Years 48 47 46 47
5 Years 83 81 80 82
10 Years 182 178 176 179
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on its expenses for the most recent fiscal
year. Absent a fee reduction, the Investment Adviser Fee for the Louisiana
Fund would have been 0.23% of the Louisiana Fund's average daily net assets.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Fund were instead to retain the services
of an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual
return will vary. For further information regarding the expenses of the Funds
and the Portfolios see "The Funds" Financial Highlights'', "Organization of
the Funds and the Portfolios", "Management of the Funds and the Portfolios"
and "How to Redeem Fund Shares". A long-term shareholder in a Fund may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by a rule of the National Association of Securities Dealers, Inc.
See "Distribution Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more
than one year prior to redemption, (b) shares acquired through the
reinvestment of dividends and distributions or (c) any appreciation in value
of other shares in the account (see "How to Redeem Fund Shares"), and no such
charge is imposed on exchanges of Fund shares for shares of one or more other
funds listed under "The Eaton Vance Exchange Privilege."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 17.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Funds' Annual Report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon reports of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its annual
report to shareholders which may be obtained without charge by contacting the
Principal Underwriter, Eaton Vance Distributors, Inc.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA FUND ARKANSAS FUND
---------------------------------------------------- --------------------------------------
YEAR ENDED YEAR ENDED
---------------------------------------------------- --------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
---------------------- ------------------------- --------------------- -------------
1995 1994<F1> 1993 1992<F3> 1995 1994<F1> 1993<F3>
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.210 $11.060 $10.340 $10.000 $10.140 $10.910 $10.000
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.479 $ 0.425 $ 0.475 $ 0.208 $ 0.460 $ 0.431 $ 0.471
Net realized and unrealized
gain (loss) on investments 0.244 (0.769) 0.837 0.385<F4> 0.132 (0.703) 1.025
-------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.723 $(0.344) $ 1.312 $ 0.593 $ 0.592 $(0.272) $ 1.496
-------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.479) $(0.425) $(0.475) $(0.208) $(0.460) $(0.431) $(0.471)
In excess of net investment
income (0.014) (0.081) (0.117) (0.045) (0.022) (0.067) (0.115)
-------- ------- ------- ------- ------- ------- -------
Total distributions $(0.493) $(0.506) $(0.592) $(0.253) $(0.482) $(0.498) $(0.586)
-------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.440 $10.210 $11.060 $10.340 $10.250 $10.140 $10.910
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> 7.38% (3.18)% 13.09% 5.71% 6.15% (2.53)% 15.00%
RATIOS/SUPPLEMENTAL DATA:*
Net assets, end of period
(000 omitted) $108,642 $105,553 $84,621 $21,105 $80,823 $82,436 $59,205
Ratio of net expenses to
average daily net assets<F6> 1.51% 1.43%<F2> 1.37% 1.01%<F2> 1.50% 1.17%<F2> 0.88%<F2>
Ratio of net investment income
to average daily net assets 4.74% 4.35%<F2> 4.30% 4.49%<F2> 4.67% 4.47%<F2> 4.27%<F2>
PORTFOLIO TURNOVER<F7> -- -- 15% 13% -- 5% 13%
<CAPTION>
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share and the ratios would
have been:
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.462 $ 0.185 $ 0.409 $ 0.411
======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.49% 1.50%<F2> 1.40%<F2> 1.42%<F2>
Net investment income 4.18% 4.00%<F2> 4.24%<F2> 3.73%<F2>
(See footnotes on page 10.)
<PAGE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
GEORGIA FUND KENTUCKY FUND
------------------------------------------------ --------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------------ --------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
------------------------ --------------------- --------------------- -------------------
1995 1994<F1> 1993 1992<F3> 1995 1994<F1> 1993 1992<F3>
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year $ 9.800 $10.750 $10.120 $10.000 $ 9.850 $10.780 $10.090 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.450 $ 0.413 $ 0.459 $ 0.380 $ 0.458 $ 0.415 $ 0.462 $ 0.363
Net realized and unrealized
gain (loss) on investments 0.007<F3> (0.841) 0.776 0.215 0.163 (0.811) 0.820 0.192
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.457 $(0.428) $ 1.235 $ 0.595 $ 0.621 $(0.396) $ 1.282 $ 0.555
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.450) $(0.413) $(0.459) $(0.380) $(0.458) $(0.415) $(0.462) $(0.363)
In excess of net investment
income (0.017) (0.065) (0.129) (0.095) (0.023) (0.075) (0.125) (0.102)
From net realized gain on
investments -- -- (0.017) -- -- -- (0.005) --
In excess of net realized
gain on investments -- (0.044) -- -- -- (0.044) -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.467) $(0.522) $(0.605) $(0.475) $(0.481) $(0.534) $(0.592) $(0.465)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.790 $ 9.800 $10.750 $10.120 $ 9.990 $ 9.850 $10.780 $10.090
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> 4.90% (4.08)% 12.60% 5.85% 6.61% (3.78)% 13.05% 5.45%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $120,143 $134,481 $120,043 $42,156 $143,106 $141,994 $20,073 $46,835
Ratio of net expenses to
average daily net
assets<F6> 1.49% 1.41%<F2> 1.52% 1.13%<F2> 1.52% 1.44%<F2> 1.50% 1.44%<F2>
Ratio of net investment
income to average daily
net assets 4.72% 4.39%<F2> 4.27% 4.72%<F2> 4.74% 4.39%<F2> 4.29% 4.56%<F2>
PORTFOLIO TURNOVER<F7> -- -- 20% 33% -- -- 21% 64%
<CAPTION>
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or Administrator. Had such actions not been taken, net investment income per share and the ratios would
have been:
<S> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.341 $0.357
======= ======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.61%<F2> 1.52%<F2>
Net investment income 4.24%<F2> 4.48%<F2>
(See footnotes on page 10.)
<PAGE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
LOUISIANA FUND MARYLAND FUND
---------------------------------------- --------------------------------------------------
YEAR ENDED YEAR ENDED
---------------------------------------- --------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
---------------------- ------------- ---------------------- ------------------------
1995 1994<F1> 1993<F3> 1995 1994<F1> 1993 1992<F3>
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.010 $11.130 $10.000 $10.070 $11.070 $10.290 $10.000
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.487 $ 0.447 $ 0.478 $ 0.476 $ 0.428 $ 0.466 $ 0.303
Net realized and unrealized
gain (loss) on investments (0.006)<F4> (0.937) 1.234 0.169 (0.922) 0.890 0.375<F4>
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.481 $(0.490) $ 1.712 $ 0.645 $(0.494) $ 1.356 $ 0.678
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.487) $(0.447) $(0.478) $(0.476) $(0.428) $(0.466) $(0.303)
In excess of net investment
income (0.024) (0.074) (0.104) (0.009) (0.070) (0.110) (0.085)
In excess of net realized
gain on investments -- (0.109) -- -- (0.008) -- --
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.511) $(0.630) $(0.582) $(0.485) $(0.506) $(0.576) $(0.388)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.980 $10.010 $11.130 $10.230 $10.070 $11.070 $10.290
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> 5.08% (4.56)% 17.26% 6.71% (4.56)% 13.61% 6.65%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $31,836 $29,020 $17,935 $113,826 $116,721 $95,226 $29,180
Ratio of net expenses to
average daily net assets<F6> 1.31% 1.08%<F2> 1.07%<F2> 1.50% 1.43%<F2> 1.43%<F2> 1.30%<F2>
Ratio of net investment
income to average daily
net assets 4.97% 4.62%<F2> 4.27%<F2> 4.82% 4.44%<F2> 4.28%<F2> 4.25%<F2>
PORTFOLIO TURNOVER<F7> -- 14% 86% -- -- 12% 3%
<CAPTION>
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share and the ratios
would have been:
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.476 $ 0.412 $ 0.401 $ 0.461 $ 0.280
======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.42% 1.44%<F2> 1.76%<F2> 1.48% 1.62%<F2>
Net investment income 4.86% 4.26%<F2> 3.58%<F2> 4.23% 3.93%<F2>
(See footnotes on page 10.)
<PAGE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
MISSOURI FUND NORTH CAROLINA FUND
------------------------------------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------- ---------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
-------------------- ------------------- ----------------------- --------------------
1995 1994<F1> 1993 1992<F3> 1995 1994<F1> 1993 1992<F3>
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year $10.240 $11.250 $10.400 $10.000 $ 9.970 $10.940 $10.300 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.477 $ 0.423 $ 0.470 $ 0.200 $ 0.466 $ 0.423 $ 0.468 $ 0.456
Net realized and unrealized
gain (loss) on investments 0.289 (0.904) 1.005 0.455 0.011<F4> (0.895) 0.794 0.423<F4>
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.766 $(0.481) $ 1.475 $ 0.655 $ 0.477 $(0.472) $ 1.262 $ 0.879
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.477) $(0.423) $(0.470) $(0.200) $(0.466) $(0.423) $(0.468) $(0.456)
In excess of net investment
income (0.019) (0.084) (0.128) (0.055) (0.021) (0.075) (0.120) (0.123)
In excess of net realized
gain on investments -- (0.022) (0.027) -- -- -- (0.034) --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.496) $(0.529) $(0.625) $(0.255) $(0.487) $(0.498) $(0.622) $(0.579)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.510 $10.240 $11.250 $10.400 $ 9.960 $ 9.970 $10.940 $10.300
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> 7.82% (4.33)% 14.66% 6.33% 5.03% (4.40)% 12.69% 8.75%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $89,811 $91,227 $76,653 $25,225 $188,450 $192,667 $173,828 $71,733
Ratio of net expenses to
average daily net
assets<F6> 1.53% 1.49%<F2> 1.52% 1.32%<F2> 1.51% 1.42%<F2> 1.52% 1.35%<F2>
Ratio of net investment
income to average daily
net assets 4.72% 4.30%<F2> 4.23% 4.31%<F2> 4.78% 4.43%<F2> 4.34% 4.54%<F2>
PORTFOLIO TURNOVER<F7> -- -- 14% 21% -- -- 16% 52%
<CAPTION>
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or Administrator. Had such actions not been taken, net investment income per share and the ratios would
have been:
<S> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.467 $ 0.192 $ 0.434
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.55% 1.49%<F2> 1.57%<F2>
Net investment income 4.20% 4.14%<F2> 4.32%<F2>
(See footnotes on page 10.)
<PAGE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
OREGON FUND SOUTH CAROLINA
-------------------------------------------------- --------------------------------------------
YEAR ENDED YEAR ENDED
-------------------------------------------------- --------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
---------------------- ----------------------- ------------------------ ------------
1995 1994<F1> 1993 1992<F3> 1995 1994<F1> 1993<F3>
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year $10.090 $11.130 $10.270 $10.000 $ 9.940 $10.890 $10.000
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.455 $ 0.415 $ 0.459 $ 0.351 $ 0.460 $ 0.408 $ 0.461
Net realized and unrealized
gain (loss) on investments 0.241 (0.869) 0.983 0.368 0.071 (0.870) 0.986
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.696 $(0.454) $ 1.442 $ 0.719 $ 0.531 $(0.462) $ 1.447
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.455) $(0.415) $(0.459) $(0.351) $(0.461) $(0.408) $(0.461)
In excess of net investment
income (0.021) (0.078) (0.117) (0.098) (0.011) (0.080) (0.096)
From net realized gain on
investments -- (0.093) (0.006) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.476) $(0.586) $(0.582) $(0.449) $(0.471) $(0.488) $(0.557)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.310 $10.090 $11.130 $10.270 $10.000 $ 9.940 $10.890
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> 7.22% (4.21)% 14.47% 7.10% 5.64% (4.33)% 14.50%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $145,056 $151,127 $128,229 $41,703 $59,955 $59,878 $43,169
Ratio of net expenses to
average daily net
assets<F6> 1.53% 1.43%<F2> 1.55% 1.47%<F2> 1.49% 1.36%<F2> 1.07%<F2>
Ratio of net investment
income to average daily
net assets 4.59% 4.28%<F2> 4.22% 4.27%<F2> 4.77% 4.27%<F2> 4.22%<F2>
PORTFOLIO TURNOVER<F7> -- -- 23% 44% -- 3% 13%
<CAPTION>
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or Adminstrator. Has such actions not been taken, net investment income per share and the ratios would
have been:
<S> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.338 $ 0.421
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.63%<F2> 1.44%<F2>
Net investment income 4.11%<F2> 3.85%<F2>
(See footnotes on page 10.)
<PAGE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------
TENNESSEE FUND VIRGINIA FUND
----------------------------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- ---------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
------------------ --------------- ---------------- -----------------------------
1995 1994<F1> 1993 1992<F3> 1995 1994<F1> 1993 1992 1991<F3>
---- ---- ---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE, beginning of
year $10.020 $ 11.070 $10.010 $10.000 $ 10.120 $11.060 $ 10.460 $10.200 $10.000
------- -------- ------- ------- -------- ------- -------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.468 $ 0.426 $ 0.466 $ 0.040 $ 0.479 $ 0.438 $ 0.483 $ 0.526 $ 0.087
Net realized and unrealized
gain (loss) on investments 0.115 (0.848) 1.158 0.027<F4> 0.161 (0.864) 0.762 0.385 0.220<F4>
------- -------- ------- ------- -------- ------- -------- ------- -------
Total income (loss) from
operations $ 0.583 $ (0.422) $ 1.624 $ 0.067 $ 0.640 $(0.426) $ 1.245 $ 0.911 $ 0.307
------- -------- ------- ------- -------- ------- -------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.468) $ (0.426) $(0.466) $(0.040) $ (0.479) $(0.438) $ (0.483) $(0.526) $(0.087)
In excess of net investment
income (0.025) (0.071) (0.098) (0.017) (0.021) (0.076) (0.130) (0.120) (0.020)
From net realized gain on
investments -- (0.094) -- -- -- -- (0.022) (0.005) --
In excess of net realized
gain on investments -- (0.037) -- -- -- -- (0.010) -- --
------- -------- ------- ------- -------- ------- -------- ------- -------
Total distributions $(0.493) $ (0.628) $(0.564) $(0.057) $ (0.500) $(0.514) $ (0.645) $(0.651) $(0.107)
------- -------- ------- ------- -------- ------- -------- ------- -------
NET ASSET VALUE, end of year $10.110 $ 10.020 $11.070 $10.010 $ 10.260 $10.120 $ 11.060 $10.460 $10.200
======= ======== ======= ======= ======== ======= ======== ======= =======
TOTAL RETURN<F5> 6.12% (3.93)% 16.97% 0.01% 6.62% (3.95)% 12.33% 9.16% 2.82%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $57,484 $ 55,379 $39,648 $43,475 $189,535 $193,420 $175,426 $72,629 $11,081
Ratio of net expenses to
average daily
net assets<F6> 1.47% 1.37%<F2> 1.30% 1.00%<F2> 1.50% 1.44%<F2> 1.52% 1.36% 1.27%<F2>
Ratio of net investment
income to average daily
net assets 4.77% 4.44%<F2> 4.24% 2.91%<F2> 4.81% 4.51%<F2> 4.42% 4.86% 4.47%<F2>
PORTFOLIO TURNOVER<F7> -- -- 28% 0% -- -- 27% 85% 10%
*For the periods indicated, the operating expenses of each Fund reflect a reduction of expenses by the Administrator and/or the
Investment Adviser. Had such actions not been taken, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER
SHARE $ 0.432 $ 0.025 $ 0.501 $ 0.079
======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> 1.61% 2.10%<F2> 1.59% 1.68%<F2>
Net investment income 3.93% 1.81%<F2> 4.63% 4.06%<F2>
Footnotes:
<FN>
<F1> For the eleven months ended August 31, 1994.
<F2> Annualized.
<F3> For the period from the start of business July 26, 1991 to September 30, 1991 for the Virginia Fund, for the period from the
start of business December 23, 1991, December 23, 1991, February 3, 1992, May 1, 1992, October 23, 1991, December 24, 1991
and August 25, 1992 to September 30, 1992 for the Georgia, Kentucky, Maryland, Missouri, North Carolina, Oregon, and
Tennessee Funds, respectively, and for the period from the start of business May 1, 1992 to September 30, 1993 for the
Alabama Fund and for the period from the start of business, October 2, 1992 to September 30, 1993 for the Arkansas, Louisiana
and South Carolina Funds, respectively.
<F4> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing
of sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F5> Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset
value on the payable date. Total return is computed on a non-annualized basis.
<F6> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7> Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Funds' annual report.
</FN>
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
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The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are
rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment
Adviser. Each Portfolio has the same investment objective as its corresponding
Fund.
EV MARATHON ALABAMA MUNICIPALS FUND (the "Alabama Fund") seeks to provide
current income exempt from regular federal income tax and Alabama State
personal income taxes. The Alabama Fund seeks to meet its objective by
investing its assets in the Alabama Municipals Portfolio (the "Alabama
Portfolio").
EV MARATHON ARKANSAS MUNICIPALS FUND (the "Arkansas Fund") seeks to provide
current income exempt from regular federal income tax and Arkansas State
personal income taxes. The Arkansas Fund seeks to meet its objective by
investing its assets in the Arkansas Municipals Portfolio (the "Arkansas
Portfolio").
EV MARATHON GEORGIA MUNICIPALS FUND (the "Georgia Fund") seeks to provide
current income exempt from regular federal income tax and Georgia State
personal income taxes. The Georgia Fund seeks to meet its objective by
investing its assets in the Georgia Municipals Portfolio (the "Georgia
Portfolio").
EV MARATHON KENTUCKY MUNICIPALS FUND (the "Kentucky Fund") seeks to provide
current income exempt from regular federal income tax and Kentucky state
personal income taxes in the form of an investment exempt from the Kentucky
intangibles tax. The Kentucky Fund seeks to meet its objective by investing
its assets in the Kentucky Municipals Portfolio (the "Kentucky Portfolio").
EV MARATHON LOUISIANA MUNICIPALS FUND (the "Louisiana Fund") seeks to provide
current income exempt from regular federal income tax and Louisiana State
individual and corporate income taxes. The Louisiana Fund seeks to meet its
objective by investing its assets in the Louisiana Municipals Portfolio (the
"Louisiana Portfolio").
EV MARATHON MARYLAND MUNICIPALS FUND (the "Maryland Fund") seeks to provide
current income exempt from regular federal income tax and Maryland State and
local income taxes. The Maryland Fund seeks to meet its objective by investing
its assets in the Maryland Municipals Porfolio (the "Maryland Portfolio").
EV MARATHON MISSOURI MUNICIPALS FUND (the "Missouri Fund") seeks to provide
current income exempt from regular federal income tax and Missouri State
personal income taxes. The Missouri Fund seeks to meet its objective by
investing in the Missouri Municipals Portfolio (the "Missouri Portfolio").
EV MARATHON NORTH CAROLINA MUNICIPALS FUND (the "North Carolina Fund") seeks
to provide current income exempt from regular federal income tax and North
Carolina State personal income taxes. The North Carolina Fund seeks to meet
its objective by investing its assets in the North Carolina Municipals
Portfolio (the "North Carolina Portfolio").
EV MARATHON OREGON MUNICIPALS FUND (the "Oregon Fund") seeks to provide
current income exempt from regular federal income tax and Oregon State
personal income taxes. The Oregon Fund seeks to meet its objective by
investing its assets in the Oregon Municipals Portfolio (the "Oregon
Portfolio").
EV MARATHON SOUTH CAROLINA MUNICIPALS FUND (the "South Carolina Fund") seeks
to provide current income exempt from regular federal income tax and South
Carolina State personal income taxes. The South Carolina Fund seeks to meet
its objective by investing its assets in the South Carolina Municipals
Portfolio (the "South Carolina Portfolio").
EV MARATHON TENNESSEE MUNICIPALS FUND (the "Tennessee Fund") seeks to provide
current income exempt from regular federal income tax and Tennessee State
personal income taxes. The Tennessee Fund seeks to meet its objective by
investing its assets in the Tennessee Municipals Portfolio (the "Tennessee
Portfolio").
EV MARATHON VIRGINIA MUNICIPALS FUND (the "Virginia Fund") seeks to provide
current income exempt from regular federal income tax and Virginia state
personal income taxes. The Virginia Fund seeks to meet its objective by
investing its assets in the Virginia Municipals Portfolio (the "Virginia
Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
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EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE
WITH ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy
is a fundamental policy of each Fund and its corresponding Portfolio, which
may not be changed unless authorized by a vote of the Fund's shareholders or
that Portfolio's investors, as the case may be.
At least 75% of the net assets of the Alabama Portfolio, Arkansas Portfolio,
Georgia Portfolio, Louisiana Portfolio, Maryland Portfolio, Missouri Portfolio,
North Carolina Portfolio, South Carolina Portfolio, Tennessee Portfolio and
Virginia Portfolio and at least 70% of the net assets of the Kentucky Portfolio
and Oregon Portfolio will normally be invested in obligations rated at least
investment grade at the time of investment (which are those rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by either
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch")) or, if unrated, determined by the Investment Adviser to be of at
least investment grade quality. The balance of each Portfolio's net assets may
be invested in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. Municipal obligations rated
Baa or BBB may have speculative characteristics. Also, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher rated
obligations. Securities rated below BBB or Baa are commonly known as "junk
bonds". A Portfolio may retain an obligation whose rating drops below B after
its acquisition if such retention is considered desirable by the Investment
Adviser. See "Risk Considerations." For a description of municipal obligation
ratings, see the Statement of Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public
and private purposes, the interest on which is, in the opinion of bond
counsel, exempt from regular federal income tax. Public purpose municipal
bonds include general obligation and revenue bonds. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility. Municipal notes include bond
anticipation, tax anticipation and revenue anticipation notes. Bond, tax and
revenue anticipation notes are short-term obligations that will be retired
with the proceeds of an anticipated bond issue, tax revenue or facility
revenue, respectively. Under normal market conditions, a Portfolio will invest
at least 65% of its total assets in obligations issued by its respective State
or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax for individual investors. As at August 31,
1995, the Portfolios had invested in such obligations as follows (as a
percentage of net assets): Alabama Portfolio (8.2%); Arkansas Portfolio
(17.0%); Georgia Portfolio (14.3%); Kentucky Portfolio (16.4%); Louisiana
Portfolio (19.5%); Maryland Portfolio (14.1%); Missouri Portfolio (9.8%);
North Carolina Portfolio (7.3%); Oregon Portfolio (15.4%); South Carolina
Portfolio (18.5%); Tennessee Portfolio (14.2%); and Virginia Portfolio
(15.9%). At August 31, 1995, the Portfolios limited their investment in
obligations subject to the federal alternative minimum tax to not more than
20% of net assets. The Portfolios are no longer subject to such limitation.
Distributions to corporate investors of certain interest income may also be
subject to the federal alternative minimum tax.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State. Each Portfolio is, therefore, more
susceptible to factors adversely affecting issuers in one State than mutual
funds which do not concentrate in a specific State. Municipal obligations of
issuers in a single State may be adversely effected by economic developments
and by legislation and other governmental activities in that State. To the
extent that a Portfolio's assets are concentrated in municipal obligations of
issuers of a single State, that Portfolio may be subject to an increased risk
of loss. Each Portfolio may also invest in obligations issued by the
governments of Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix
to this Prospectus for a description of economic and other factors relating to
the States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its assets in municipal
obligations of the same type, including, without limitation, the following:
lease rental obligations of State and local authorities; obligations of State
and local housing finance authorities, municipal utilities systems or public
housing authorities; obligations 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 a
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and state health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its assets, more than 5% (but not
more than 25%) of its assets in the securities of any issuer. A Portfolio is
likely to invest a greater percentage of its assets in the securities of a
single issuer than would a diversified fund. Therefore, a Portfolio would be
more susceptible to any single adverse economic or political occurrence or
development affecting issuers of the relevant State's municipal obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive
their value from another instrument, security or index. In addition, each
Portfolio may temporarily borrow up to 5% of the value of its total assets to
satisfy redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a
"when-issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to a Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may,
however, alter this tendency. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time. Inverse floaters
are leveraged because they provide two or more dollars of bond market exposure
for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the
Municipal Bond Index traded on the Chicago Board of Trade) and other financial
instruments and indices. Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed a Portfolio's initial investment in these contracts. A Portfolio
may not purchase or sell futures contracts or related options, except for
closing purchase or sale transactions, if immediately thereafter the sum of
the amount of margin deposits and premiums paid on the Portfolio's outstanding
positions would exceed 5% of the market value of the Portfolio's net assets.
These transactions involve transaction costs. There can be no assurance that
the Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's current yield.
Insurance generally will be obtained from insurers with a claims-paying
ability rated Aaa by Moody's or AAA by S&P or Fitch. The insurance does not
guarantee the market value of the insured obligations or the net asset value
of a Fund's shares.
RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations
may have some quality and protective characteristics, these characteristics
can be expected to be offset or outweighed by uncertainties or major risk
exposures to adverse conditions. Lower rated and comparable unrated municipal
obligations are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to greater price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated municipal obligations are also
more likely to react to real or perceived developments affecting market and
credit risk than are more highly rated obligations, which react primarily to
movements in the general level of interest rates. The Investment Adviser seeks
to minimize the risks of investing in below investment grade securities
through professional investment analysis and attention to current developments
in interest rates and economic conditions. When the Portfolio invests in such
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by a Portfolio which
are rated below investment grade but which, subsequent to the assignment of
such rating, are backed by escrow accounts containing U.S. Government
obligations may be determined by the Investment Adviser to be of investment
grade quality for purposes of the Portfolio's investment policies. A Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition, if such retention is considered desirable by the Investment
Adviser; provided, however, that holdings of obligations rated below Baa or
BBB will not exceed 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary
in order to comply with its credit quality limitations. For a description of
municipal obligation ratings, see the Statement of Additional Information.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline,
the value of securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Changes in the credit quality of the
issuers of municipal obligations held by a Portfolio will affect the principal
value of (and possibly the income earned on) on such obligations. In addition,
the values of such securities are affected by changes in general economic
conditions and business conditions affecting the specific industries of their
issuers. Changes by recognized rating services in their ratings of a security
and in the ability of the issuer to make payments of principal and interest
may also affect the value of a Portfolio's investments. The amount of
information about the financial condition of an issuer of municipal
obligations may not be as extensive as that made available by corporations
whose securities are publicly traded. An investment in shares of a Fund will
not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other
accounts managed by the Investment Adviser and its affiliates, holds a major
portion or all of such securities. Under adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its assets would be invested in securities that are not readily marketable.
No established resale market exists for certain of the municipal obligations
in which a Portfolio may invest. The market for obligations rated below
investment grade is also likely to be less liquid than the market for higher
rated obligations. As a result, a Portfolio may be unable to dispose of these
municipal obligations at times when it would otherwise wish to do so at the
prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Portfolio during a time of declining interest rates, the Portfolio
may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals during the
life of the security. Each Portfolio is required to accrue and distribute
income from zero-coupon bonds on a current basis, even though it does not
receive that income currently in cash. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such
leases is often subject to the appropriation by the appropriate legislative
body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF
ADDITIONAL INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED
BY A SHAREHOLDER VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR
SUCH ENUMERATED RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS
PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND AND
PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED
BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE
APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN THE
CORRESPONDING PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES WERE MADE
IN A FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT
OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR CONSIDERED
APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A
MUTUAL FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the
Trust are responsible for the overall management and supervision of its
affairs. The Trust may issue an unlimited number of shares of beneficial
interest (no par value per share) in one or more series and because the Trust
can offer separate series (such as the Funds) it is known as a "series
company." Each share represents an equal proportionate beneficial interest in
a Fund. When issued and outstanding, each Fund's shares are fully paid and
nonassessable by the Trust and redeemable as described under "How to Redeem
Fund Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of a Fund, shareholders of that Fund are entitled to share pro rata in the net
assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
Portfolio (e.g., other U.S. and foreign investment companies, and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Portfolio itself is unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
a Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in its
corresponding Portfolio, which is a separate investment company with an
identical investment objective (although the Fund may temporarily hold a de
minimus amount of cash). Therefore, a Fund's interest in the securities owned
by its corresponding Portfolio is indirect. In addition to selling an interest
to its corresponding Fund, a Portfolio may sell interests to other affiliated
and non-affiliated mutual funds or institutional investors. Such investors
will invest in a Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in a Portfolio are not required to sell their shares at the same
public offering price as the corresponding Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in its corresponding
Portfolio. Such differences in returns are also present in other mutual fund
structures, including funds that have multiple classes of shares. For
information regarding the investment objective, policies and restrictions of
the Portfolios, see "The Funds" Investment Objectives'' and "How the Funds and
the Portfolios Invest their Assets". Further information regarding investment
practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets
of the Portfolios, and affords the potential for economies of scale for each
Fund, at least when the assets of its corresponding Portfolio exceed $500
million. The public shareholders of each Fund have previously approved the
policy of investing such Fund's assets in an interest in its corresponding
Portfolio.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and
the nonfundamental investment policies of each Fund and Portfolio may be
changed by the Trustees of the Trust and the Portfolio without obtaining the
approval of the shareholders of that Fund or the investors in that Portfolio,
as the case may be. Any such change of an investment objective will be
preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of a Fund, those shares may be subject to a contingent deferred sales charge,
as described in "How to Redeem Fund Shares". In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of
the Trust determines that the investment objective of such Portfolio is no
longer consistent with the investment objective of the Fund, such Trustees
would consider what action might be taken, including investing the assets of
such Fund in another pooled investment entity or retaining an investment
adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors investing in a Portfolio may be adversely
affected by the actions of a larger investor investing in the Portfolio. For
example, if a large investor withdraws from a Portfolio, the remaining
investors may experience higher pro rata operating expenses, thereby producing
lower returns. Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured mutual
funds which have large or institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a
separate investment company are a relatively new development in the mutual
fund industry and, therefore, the Funds may be subject to additional
regulations than historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolios as partnerships for Federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever a Fund as an
investor in a Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. A Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in a Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the corresponding Fund to withdraw its investment
in the Portfolio or take other appropriate action. Any such withdrawal could
result in a distribution "in kind" of portfolio securities (as opposed to a
cash distribution from the Portfolio). If securities are distributed, a Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of a Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund
and its corresponding Portfolio, and it is possible that the creation of
separate Boards may be considered. For further information concerning the
Trustees and officers of each of the Trust and the Portfolios, see the
Statement of Additional Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs and furnishes
for the use of each Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolios. Under its investment advisory agreement with a Portfolio, BMR
receives a monthly advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-----------------------------------------------------------------------------
1 up to $20 million .......................... 0.100% 1.00%
2 $20 million but less than $40 million ...... 0.200% 2.00%
3 $40 million but less than $500 million ..... 0.300% 3.00%
4 $500 million but less than $1 billion ...... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...... 0.225% 2.25%
7 $2 billion but less than $3 billion ........ 0.200% 2.00%
8 $3 billion and over ........................ 0.175% 1.75%
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory
fees for the fiscal year ended August 31, 1995 equivalent to the following
annualized percentage of average daily net assets:
NET ASSETS AS OF
PORTFOLIO AUGUST 31, 1995 ADVISORY FEE
-----------------------------------------------------------------
Alabama ..................... 118,486,053 0.40%
Arkansas .................... 81,535,002 0.37%
Georgia ..................... 122,948,667 0.41%
Kentucky .................... 145,268,626 0.42%
Louisiana ................... 34,308,679 0.23%(1)
Maryland .................... 115,004,176 0.40%
Missouri .................... 93,162,103 0.38%
North Carolina .............. 195,178,724 0.44%
Oregon ...................... 146,390,921 0.42%
South Carolina .............. 61,411,668 0.33%
Tennessee ................... 58,673,303 0.31%
Virginia .................... 191,747,922 0.44%
(1) To enhance the net income of the Louisiana Portfolio, BMR made a reduction
of its advisory fee in the amount of $36,188.
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.
Nicole Anderes has acted as the portfolio manager of the Louisiana Portfolio
since it commenced operations. She joined Eaton Vance and BMR as a Vice
President in January 1994. Prior to joining Eaton Vance, she was a Vice
President and portfolio manager at Lazard Freres Asset Management (1992-1994)
and a Vice President and Manager -- Municipal Research at Roosevelt & Cross
(1978-1992).
Timothy T. Browse has acted as the portfolio manager of the Alabama, Arkansas,
Kentucky and Maryland Portfolios since they commenced operations. He has been
a Vice President of Eaton Vance and of BMR since 1993 and an employee of Eaton
Vance since 1992. Prior to joining Eaton Vance, he was a municipal bond trader
at Fidelity Management & Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Missouri, Oregon
and Tennessee Portfolios since they commenced operations. Ms. Clemson has been
a Vice President of Eaton Vance and BMR since 1993 and an employee of Eaton
Vance since 1985.
David C. Reilly has acted as the portfolio manager of the Georgia, North
Carolina, South Carolina and Virginia Portfolios since they commenced
operations. He has been a Vice President of Eaton Vance since 1991 and of BMR
since 1992. Prior to joining Eaton Vance, he was a Vice President and a
municipal bond analyst at Scudder, Stevens & Clark (1984-1991).
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as a Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the fund are made pursuant to a written
plan adopted in accordance with the Rule. Each Plan is subject to, and
complies with, the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). Each Fund's Plan is described further in the
Statement of Additional Information, and the following is a description of the
salient features of the Plans. Each Fund's Plan provides that the Fund,
subject to the NASD Rule, will pay sales commissions and distribution fees to
the Principal Underwriter only after and as a result of the sale of shares of
the Fund. On each sale of Fund shares (excluding reinvestment of
distributions) a Fund will pay the Principal Underwriter amounts representing
(i) sales commissions equal to 5% of the amount received by a Fund for each
share sold and (ii) distribution fees calculated by applying the rate of 1%
over the prime rate then reported in The Wall Street Journal to the
outstanding balance of Uncovered Distribution Charges (as described below) of
the Principal Underwriter. The Principal Underwriter currently expects to pay
sales commissions (except on exchange transactions and reinvestments) to a
financial services firm (an "Authorized Firm") at the time of sale equal to 4%
of the purchase price of the shares sold by such Firm. The Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
such commissions. Because the payment of the sales commissions and
distribution fees to the Principal Underwriter is subject to the NASD Rule
described below, it will take the Principal Underwriter a number of years to
recoup the sales commissions paid by it to Authorized Firms from the payments
received by it from a Fund pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE
FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, a Fund
accrues daily an amount at the rate of 1/365 of .75% of the Fund's net
assets, and pays such accrued amounts monthly to the Principal Underwriter.
Each Plan requires such accruals to be automatically discontinued during any
period in which there are no outstanding Uncovered Distribution Charges under
the Plan. Uncovered Distribution Charges are calculated daily and, briefly,
are equivalent to all unpaid sales commissions and distribution fees to which
the Principal Underwriter is entitled under a Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The
Eaton Vance organization may be considered to have realized a profit under a
Fund's Plan if at any point in time the aggregate amounts of all payments
received by the Principal Underwriter from the Fund pursuant to the Plan,
including any contingent deferred sales charges, have exceeded the total
expenses theretofore incurred by such organization in distributing shares of
the Fund. Total expenses for this purpose will include an allocable portion of
the overhead costs of such organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would
result in the incurrence and payment of increased distribution fees under the
Plan.
During the fiscal year ended August 31, 1995, each Fund paid sales commissions
under its Plan equivalent to .75% (annualized) of such Fund's average daily
net assets. As at August 31, 1995, the outstanding Uncovered Distribution
Charges of the Principal Underwriter on such day calculated under each Fund's
Plan amounted to approximately $4,287,000 (equivalent to 3.9% of net assets on
such day) in the case of the Alabama Fund, $3,364,000 (equivalent to 4.2% of
net assets on such day) in the case of the Arkansas Fund, $4,634,000
(equivalent to 3.9% of net assets on such day) in the case of the Georgia
Fund, $5,401,000 (equivalent to 3.8% of net assets on such day) in the case of
the Kentucky Fund, $1,388,000 (equivalent to 4.4% of net assets on such day)
in the case of the Louisiana Fund, $4,520,000 (equivalent to 4.0% of net
assets on such day) in the case of the Maryland Fund, $3,461,000 (equivalent
to 3.9% of net assets on such day) in the case of the Missouri Fund,
$7,188,000 (equivalent to 3.8% of net assets on such day) in the case of the
North Carolina Fund, $5,529,000 (equivalent to 3.8% of net assets on such day)
in the case of the Oregon Fund, $2,527,000 (equivalent to 4.2% of net assets
on such day) in the case of the South Carolina Fund, $2,357,000 (equivalent to
4.1% of net assets on such day) in the case of the Tennessee Fund and
$7,026,000 (equivalent to 3.7% of net assets on such day) in the case of the
Virginia Fund.
EACH 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 AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The Trustees
of the Trust have initially implemented this provision of each Fund's Plan by
authorizing the Fund to make quarterly payments of service fees to the
Principal Underwriter and Authorized Firms in amounts not expected to exceed
.20% of the Fund's average daily net assets for each fiscal year based on the
value of Fund shares sold by such persons and remaining outstanding for at
least twelve months. However, each Fund's Plan authorizes the Trustees of the
Trust on behalf of the Fund to increase payments to the Principal Underwriter,
Authorized Firms and other persons from time to time without further action by
shareholders of the Fund, provided that the aggregate amount of payments made
to such persons under the Plan in any fiscal year of the Fund does not exceed
.25% of the Fund's average daily net assets. As permitted by the NASD Rule,
such payments are made for personal services and/or the maintenance of
shareholder accounts. Service fees are separate and distinct from the sales
commissions and distribution fees payable by a Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when
there are no outstanding Uncovered Distribution Charges of the Principal
Underwriter. For the fiscal year ended August 31, 1995, each Fund made service
fee payments (as an annualized percentage of average daily net assets) as
follows: Alabama Fund (0.14%); Arkansas Fund (0.14%); Georgia Fund (0.14%);
Kentucky Fund (0.14%); Louisiana Fund (0.12%); Maryland Fund (0.14%); Missouri
Fund (0.15%); North Carolina Fund (0.15%); Oregon Fund (0.14%); South Carolina
Fund (0.13%); Tennessee Fund (0.12%); and Virginia Fund (0.14%).
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell a Fund's shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose
representatives sell or are expected to sell significant amounts of shares. In
addition, the Principal Underwriter may from time to time increase or decrease
the sales commissions payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant
factors, including without limitation the size of a Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares, and the amount of Uncovered Distribution Charges of the Principal
Underwriter. Each Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, no Fund is contractually obligated to
continue its Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
Eaton Vance Corp. currently owns 77.3% of the outstanding stock of IBT, the
Funds' and the Portfolios' custodian, but has announced its intention to sell
such stock.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares. Shares of each Fund are offered
for sale only in States where such shares may be legally sold.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at their net asset value as determined above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold by IBT as agent for the account of their
owner on the day of their receipt by IBT or as soon thereafter as possible.
The number of Fund shares to be issued in exchange for securities will be the
aggregate proceeds from the sale of such securities, divided by the applicable
net asset value per Fund share on the day such proceeds are received. Eaton
Vance will use reasonable efforts to obtain the then current market price for
such securities but does not guarantee the best available price. Eaton Vance
will absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult
his or her tax adviser with respect to the particular Federal, State and local
tax consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
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A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO 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 share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's
STAMP program or the New York Stock Exchange's Medallion Signature Program, or
certain banks, savings and loan institutions, credit unions, securities
dealers, securities exchanges, clearing agencies and registered securities
associations as required by a regulation of the Securities and Exchange
Commission and acceptable to 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., a Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the
amount of any applicable contingent deferred sales charges (described below)
and Federal income tax required to be withheld. Although each Fund normally
expects to make payment in cash for redeemed shares, the Trust, subject to
compliance with applicable regulations, has reserved the right to pay the
redemption price of shares of a Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by that Fund
from its corresponding Portfolio. The securities so distributed would be
valued pursuant to the Portfolio's valuation procedures. If a shareholder
received a distribution in kind, the shareholder could incur brokerage or
other charges in converting the securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It
is the Authorized Firm's responsibility to transmit promptly repurchase orders
to EVD. Throughout this Prospectus, the word "redemption" is generally meant
to include a repurchase.
If shares were recently purchased, the proceeds of redemption (or repurchase)
will not be sent until the check (including a certified or cashier's check)
received for the shares purchased has cleared. Payment for shares tendered for
redemption may be delayed up to 15 days from the purchase date when the
purchase check has not yet cleared. Redemptions or repurchases may result in a
taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the
low account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years
of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales
charge. This contingent deferred sales charge is imposed on any redemption the
amount of which exceeds the aggregate value at the time of redemption of (a)
all shares in the account purchased more than six years prior to the
redemption, (b) all shares in the account acquired through reinvestment of
monthly distributions and capital gains distributions, and (c) the increase,
if any, in the value of all other shares in the account (namely those
purchased within the six years preceding the redemption) over the purchase
price of such shares. Redemptions are processed in a manner to maximize the
amount of redemption proceeds which will not be subject to a contingent
deferred sales charge; 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 or Second ....................................... 5%
Third ................................................. 4%
Fourth ................................................ 3%
Fifth ................................................. 2%
Sixth ................................................. 1%
Seventh and following ................................. 0%
In calculating the contingent deferred sales charge upon the redemption of
shares acquired in an exchange of shares of a fund currently listed under "The
Eaton Vance Exchange Privilege," the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase
of shares acquired in the exchange is deemed to have occurred at the time of
the original purchase of the exchanged shares.
No contingent deferred sales charge will be imposed on shares of a Fund which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge applicable to
shares will be waived for shares redeemed (1) pursuant to a Withdrawal Plan
(see "Eaton Vance Shareholder Services"), (2) as part of a required
distribution from a tax-sheltered retirement plan or (3) following the death
of all beneficial owners of such shares, provided the redemption is requested
within one year of death (a death certificate and other applicable documents
may be required). The contingent deferred sales charge will be paid to the
Principal Underwriter or the Fund. When paid to the Principal Underwriter it
will reduce the amount of Uncovered Distribution Charges calculated under the
Fund's Distribution Plan. See "Distribution Plans."
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT
DEFERRED SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF A
FUND'S SHARES AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS
GROWN THROUGH INVESTMENT PERFORMANCE AND REINVESTMENT OF DIVIDENDS TO
$12,000. THE INVESTOR THEN MAY REDEEM UP TO $2,000 OF SHARES WITHOUT
INCURRING A CONTINGENT DEFERRED SALES CHARGE. IF THE INVESTOR SHOULD
REDEEM $3,000 OF SHARES, A CHARGE WOULD BE IMPOSED ON $1,000 OF THE
REDEMPTION. THE RATE WOULD BE 5% BECAUSE IT WAS IN THE SECOND YEAR
AFTER THE PURCHASE WAS MADE AND THE CHARGE WOULD BE $50.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing federal and State tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS'
TRANSFER AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME
INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This
account is a complete record of all transactions between the investor and the
Fund which at all times shows the balance of shares owned. A Fund will not
issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to 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
Funds' 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 in shares at the then current net asset
value. Furthermore, the distribution option on the account will be
automatically changed to the SHARE OPTION until such time as the shareholder
selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account, or to obtain information about the account. The transfer of shares in
a "street name" account to an account with another dealer or to an account
directly with a Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of each Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (except Eaton Vance Prime
Rate Reserves) or Eaton Vance Money Market Fund, which are distributed with a
contingent deferred sales charge, on the basis of the net asset value per
share of each fund at the time of the exchange, provided that such exchange
offers are available only in States where shares of the fund being acquired
may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
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 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 the 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 Eaton Vance Marathon Group of
Funds (except EV Marathon Strategic Income Fund and Class I shares of any EV
Marathon Limited Maturity Fund), see "How to Redeem Fund Shares." The
contingent deferred sales charge schedule applicable to EV Marathon Strategic
Income Fund and Class I shares of any EV Marathon Limited Maturity Fund is 3%,
2.5%, 2% or 1% in the event of a redemption occurring in the first, second,
third or fourth year, respectively, after the original share purchase.
Shares of other funds in the Eaton Vance Marathon Group of Funds and shares of
Eaton Vance Money Market Fund may be exchanged for Fund shares on the basis of
the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by 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 Funds, 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 FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund being purchased may be mailed directly to 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 AUTOMATIC INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments
of $50 or more may be made automatically each month or quarter from a
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: Shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a contingent deferred sales charge. See "How to
Redeem Fund Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON
THE REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE
TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND,
provided that the reinvestment is effected within 60 days after such
repurchase or redemption and the privilege has not been used more than once in
the prior 12 months. Shares are sold to a reinvesting shareholder at the next
determined net asset value following timely receipt of a written purchase
order by the Principal Underwriter or by a Fund (or by the Fund's Transfer
Agent). To the extent that any shares of a Fund are sold at a loss and the
proceeds are reinvested in shares of a Fund (or other shares of the Fund are
acquired within the period beginning 30 days before and ending 30 days after
the date of the redemption) some or all of the loss will not be allowed as a
tax deduction. 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 A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL
BE DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME
OF DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the fifteenth day of each month
or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may
be considered taxable income if the Fund has taxable income during the
calendar year. Shareholders reinvesting the monthly distribution should treat
the amount of the entire distribution as the tax cost basis of the additional
shares acquired by reason of such reinvestment. Daily distribution crediting
will commence on the day that collected funds for the purchase of Fund shares
are available at the Transfer Agent. Shareholders of a Fund will receive
timely Federal income tax information as to the tax-exempt or taxable status
of all distributions made by the Fund during the calendar year. A Fund's net
realized capital gains, if any, consist of the net realized capital gains
allocated to the Fund by its corresponding Portfolio for tax purposes, after
taking into account any available capital loss carryovers; a Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code (the "Code") and to satisfy all requirements necessary
to be relieved of federal taxes on income and gains it distributes to
shareholders. In satisfying these requirements, each Fund will treat itself as
owning its proportionate share of each of its corresponding Portfolio's assets
and as entitled to the income of the Portfolio properly attributable to such
share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT
PAY FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES
TO SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL
GAINS IN ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE.
AS PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL
INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. Distributions are
taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base
for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. Each Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share (net asset value) of the Fund on the last day
of the period and annualizing the resulting figure. A taxable-equivalent yield
is computed by using the tax-exempt yield figure and dividing by 1 minus the
tax rate. Each Fund's average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price (net asset value) for specified periods ending
with the most recent calendar quarter, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable contingent
deferred sales charge at the end of the period. Each Fund may publish annual
and cumulative total return figures from time to time.
Each Fund may also publish its distribution rate and/or effective distribution
rate. Each Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized by the current maximum offering
price per share (net asset value). Each Fund's effective distribution rate is
computed by dividing the distribution rate by the ratio used to annualize the
most recent monthly distribution and reinvesting the resulting amount for a
full year on the basis of such ratio. The effective distribution rate will be
higher than the distribution rate because of the compounding effect of the
assumed reinvestment. Investors should note that a Fund's yield is calculated
using a standardized formula the income component of which is computed from
the yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on a Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month.
Each Fund may also publish total return figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take
into account the contingent deferred sales charge would be reduced to the
extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's current yield, total return
distribution rate or effective distribution rate for any prior period should
not be considered a representation of what an investment may earn or what the
Fund's yield, total return distribution rate or effective distribution rate
may be in any future period. If the expenses of a Fund or its corresponding
Portfolio are paid by Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net
assets in obligations issued by the governments of Guam and the U.S. Virgin
Islands and up to 35% of its assets in obligations issued by the government of
Puerto Rico. Set forth below is certain economic and tax information
concerning the States in which the Portfolios invest and Puerto Rico. The bond
ratings provided below are current as of the date of this Prospectus and are
based on economic conditions which may not continue; moreover, there can be no
assurance that particular bond issues may not be adversely affected by changes
in economic, political or other conditions. Unless stated otherwise, the
ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
ALABAMA. Since the early 1980's, modernization of existing facilities and an
increase in direct foreign investments in the State have made the State's
manufacturing sector more competitive in domestic and international markets.
Although it remains the largest employment sector, the State economy has
become less dependent on manufacturing (pulp and paper, mining and chemicals).
Strong growth in the service and wholesale/retail trade sectors combined with
recent weakness in the manufacturing sector has enabled the economy to become
more diverse. However, its reliance on the manufacturing sector remains
significantly greater than the national average. In the past several years,
the loss of manufacturing jobs has been primarily as a result of weakness in
the durable goods sector. Overall, non-agricultural employment has steadily
grown during the past five years.
Alabama general obligations are currently rated AA, Aa and AA, by S&P, Moody's
and Fitch, respectively.
ALABAMA TAXES. In the opinion of Bradley, Arant, Rose & White, special Alabama
tax counsel to the Alabama Fund, under existing Alabama law, as long as the
Alabama Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Alabama Fund is invested in the Alabama Portfolio, and
provided that the Alabama Portfolio is invested in obligations the interest on
which would be exempt from Alabama personal income taxes if held directly by
an individual shareholder (such as obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions
of the United States), and further provided that the Alabama Portfolio is
characterized as a partnership for Federal income tax purposes, dividends
received by shareholders from the Alabama Fund that represent interest
received by the Alabama Portfolio on such obligations will be exempt from
Alabama personal income taxes. To the extent that distributions by the Alabama
Fund are derived from long-term or short-term capital gains on such
obligations, or from dividends or capital gains on other types of obligations,
such distributions will not be exempt from Alabama personal income tax.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Alabama Fund by an Alabama resident will be taken into account for
Alabama personal income tax purposes.
ARKANSAS. During the past two decades, the economy of Arkansas has shifted
from an agricultural to a light manufacturing base. The State is now moving
toward a heavier manufacturing base involving more sophisticated processes and
products such as electrical machinery, transportation equipment, fabricated
metals and electronics. The health services, wholesale/retail trade and
service sectors have also grown in recent years. The diversification of
economic interests has lessened the State's cyclical sensitivity to the impact
of any single sector. Agriculture, however, continues to be an important
component of the State's economy. In addition, the State has significant
natural gas and oil producing interests, as well as mining activities. The
seasonally adjusted unemployment rate for August, 1995, was 5.1%, compared to
a national rate of 5.6%. State law prohibits deficit spending. In 1994, the
General Fund had an ending balance of $772 million, with revenues over
expenditures of $161 million. The State has adopted the 1995-1997 biennial
budget.
Arkansas general obligation bonds are rated Aa and AA by Moody's and S&P.
Fitch does not currently rate Arkansas general obligations.
ARKANSAS TAXES. In the opinion of Friday, Eldredge & Clark, special Arkansas
tax counsel to the Arkansas Fund, under existing Arkansas law as long as the
Arkansas Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Arkansas Fund is invested in obligations the interest
on which would be exempt from Arkansas personal income taxes if held directly
by an individual shareholder (such as obligations of Arkansas or its political
subdivisions, of the United States or of certain territories or possessions of
the United States), dividends received from the Arkansas Fund that represent
interest received by the Arkansas Fund on such obligations will be exempt from
Arkansas personal income taxes. To the extent that distributions by the
Arkansas Fund are derived from long-term or short-term capital gains on such
obligations, or from dividends or capital gains on other types of obligations,
such distributions will not be exempt from Arkansas personal income tax. The
opinion addresses the tax consequences when the Arkansas Fund invests directly
in these obligations. The application of these consequences to the Arkansas
Fund when investing in interests of another registered investment company was
the subject of a favorable opinion from Revenue Counsel for the Arkansas
Department of Finance and Administration.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Arkansas Fund by an Arkansas resident will be taken into account for
Arkansas personal income tax purposes.
GEORGIA. Georgia has a generally sound, well-diversified economy, which has
performed relatively well during recent years. According to the Department of
Labor for the State of Georgia, the unemployment rate of the civilian labor
force in the State as of July 1995 was 5.6% compared to 5.9% for the nation.
Actual revenues of the State for fiscal year 1994 increased 13.8% over revenue
collections for the previous fiscal year. Estimated revenue collections for
the fiscal year ending June 30, 1995 increased 6.3% over actual revenue
collections for fiscal 1994. Total projected revenues for fiscal year 1996 are
approximately $10.7 million, a 7.2% increase over the total projected revenues
for fiscal year 1995. This improvement is expected to continue for most
economic sectors as the 1996 Summer Olympics draw near. The fiscal 1996 budget
includes approximately $76,663,963 to help Georgians recover from the 1994
summer flooding and tropical storm disasters which is not likely to affect the
market value of Georgia obligations or the ability of the State or its
instrumentalities to pay interest and repay principal on Georgia obligations
in a timely manner.
Georgia general obligations are rated "AA+," "Aaa" and "AA" by S&P, Moody's
and Fitch, respectively. Both S&P and Fitch view the State as stable.
GEORGIA TAXES. In the opinion of Powell, Goldstein, Frazer & Murphy, special
tax counsel to the Georgia Fund, under existing law, shareholders who are
otherwise subject to the Georgia personal or corporate income tax will not be
subject to Georgia income tax on distributions with respect to shares of the
Georgia Fund to the extent such distributions represent "exempt-interest
dividends" for Federal income tax purposes that are attributable to interest
on obligations issued by or on behalf of the State of Georgia or its political
subdivisions, and by the governments of Puerto Rico, the U.S. Virgin Islands
and Guam to the extent that such obligations are exempt from State income tax
pursuant to Federal law. Distributions, if any, derived from capital gain or
other sources generally will be taxable to shareholders of the Georgia Fund
for Georgia income tax purposes. Shareholders who are subject to the Georgia
corporate net worth tax, a franchise tax that is based on net worth, will be
subject to such tax with respect to ownership of shares of the Georgia Fund
and distributions with respect thereto.
The application of the Georgia intangible personal property tax to the
ownership of shares of the Georgia Fund is not clear. Although obligations or
evidences of debt of the United States and of the State of Georgia, its
political subdivisions and public institutions are exempt from the Georgia
intangible personal property tax, the Georgia Department of Revenue has taken
the position that shares in a municipal bond fund are deemed to be taxable
intangible property separate from an ownership interest in the underlying
obligations. Under such an analysis, shareholders of the Georgia Fund who are
otherwise subject to the Georgia intangible personal property tax would be
subject to such tax with respect to ownership of shares of the Georgia Fund
(without any exemption for the underlying United States or Georgia
obligations), but at the rate of 10 cents per $1,000 applicable to "other
intangible property" rather than at the higher rate of $1 per $1,000 imposed
on "stocks." All shareholders should consult their tax advisors regarding the
possible intangible personal property tax consequences of ownership of shares
in the Georgia Fund.
KENTUCKY. Kentucky's economy, once dominated by coal, horses, bourbon, and
tobacco, has attained substantial diversification during the past decade into
the manufacturing and service sectors, including particularly air
transportation, health care and business services, and retail trade. Kentucky
still ranks first among the states in total tonnage of coal produced and
second in the total cash value of tobacco raised. The state's leading
manufactured products now include automobiles and automotive parts, industrial
machinery, consumer appliances, and apparel. Kentucky's horse breeding and
racing industry, showcased by the Kentucky Derby, as well as an extensive
system of state parks, have contributed to a growing tourism industry within
the State. As of August 1995, Kentucky's unemployment rate was 4.7% compared
to the national average of 5.6%.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last three years. State General Fund revenue grew by 10.9% in the
fiscal year 1995 to a total of $5.15 billion. To avoid the need for state
budget cuts in the event revenues do not meet expectations, a Budget Reserve
Trust Fund was established with a $90 milion deposit in fiscal year 1994. An
additional $10 million was deposited into the Budget Reserve Trust Fund in
fiscal year 1995, bringing the balance to the targeted level of $100 million.
Because the Kentucky Constitution requires a vote of a majority of the
electorate to approve the issuance of State general obligation indebtedness,
none of the outstanding indebtedness of the Commonwealth of Kentucky is
general obligation indebtedness but instead is either debt payable only from
revenues produced by the particular project or lease revenue indebtedness
subject to legislative appropriation for the payment of debt service during
each fiscal biennium of the Commonwealth. In September 1994 S&P upgraded the
rating of the State's appropriation-backed debt from A to A+. Moody's and
Fitch rate the State's appropriation-backed debt as A and A+, respectively.
KENTUCKY TAXES. In the opinion of Wyatt, Tarrant & Combs, special Kentucky tax
counsel to the Kentucky Fund, shareholders of the Kentucky Fund who otherwise
are subject to individual or corporate income taxes of the Commonwealth of
Kentucky will not be subject to such taxes on distributions with respect to
their shares in the Kentucky Fund to the extent that such distributions are
attributable to interest on obligations of the Commonwealth of Kentucky or its
political subdivisions or on obligations of the United States, the governments
of Puerto Rico, the U.S. Virgin Islands or Guam. To the extent that
distributions from the Kentucky Fund are included in a corporate shareholder's
surplus, they will be subject to the Kentucky license (franchise) tax that is
based on net worth. To the extent that the Portfolio's holdings consist of
obligations of the Commonwealth of Kentucky or its political subdivisions and
the balance are obligations of the United States, shares in the Kentucky Fund
will be exempt from the Kentucky Intangibles Tax. Shareholders will be
required to include the entire amount of capital gain dividends in income to
the same extent for state income tax purposes as for Federal income tax
purposes.
Many local governments in Kentucky, including Louisville, Jefferson County,
Lexington-Fayette County, Bowling Green and Covington, impose taxes on the net
profits of businesses operating (in any form, including sole proprietorships)
within the local jurisdiction. Such taxes should not be imposed on income
derived from an investment in the Kentucky Fund. However, because of
differences in the language of these laws, it is not possible to address their
specific impact.
LOUISIANA. The State has experienced operating budget deficits in three of the
last seven fiscal years. Since 1988, the gap between General Fund expenditures
and recurring revenues has widened for a variety of reasons: new expenditures
have been phased in; new tax exemptions have been implemented; the federal
government has issued costly mandates, most significantly in the Medicaid
program; and revenues once available to the General Fund have in recent years
been dedicated for specific purposes. Furthermore, the State's tax base (which
is comprised in part of mineral revenues and volume-based taxes, such as those
on tobacco, beer, and liquor) is inherently inelastic, i.e., its nominal
growth rate does not match or exceed the growth rate of the economy.
The State ended the Fiscal Period 1992-93 with a positive undesignated fund
balance in its General Fund of $101 million. During 1994, $30.6 million of the
surplus funds were utilized to cover known shortfalls in current year program
operations. The State ended the Fiscal Period 1993-94 with an operating
surplus of $129 million. This amount together with the prior year fund balance
of $101 million and reserve changes leaves an unreserved-undesignated General
Fund fund balance of $212.9 million. For fiscal 1996, the State will receive a
significantly smaller amount of federal funding for its health care programs.
The State faces a large gap for the 1996 budget. It is uncertain how this
fiscal imbalance will be resolved or how it will impact the creditworthiness
of the State and its outstanding and related debt.
As of the date of this Prospectus, general obligations of Louisiana are rated
A- (with a negative outlook) and Baa1 by S&P and Moody's, respectively.
LOUISIANA TAXES. In the opinion of Jones, Walker, Waechter, Poitevent, Carrere
& Denegre, L.L.P., special Louisiana tax counsel to the Louisiana Fund, under
existing Louisiana law as long as: (i) the Louisiana Fund qualifies as a
separate "regulated investment company" under the Code; (ii) the Louisiana
Portfolio will be treated as a partnership for Federal and state tax purposes;
and (iii) the Louisiana Fund receives income from obligations, the interest on
which would be exempt from Louisiana individual and corporate income taxes if
held directly by an individual shareholder (such as obligations of Louisiana
or its political subdivisions, of the United States or of certain territories
or possessions of the United States), the dividends received from the
Louisiana Fund that represent interest received by the Louisiana Fund on such
obligations will be exempt from Louisiana individual and corporate income
taxes. To the extent that distributions by the Louisiana Fund are derived from
long-term or short-term capital gains on such obligations, or from dividends
or capital gains on other types of obligations, such distributions will not be
exempt from Louisiana individual and corporate income taxes.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Louisiana Fund by a Louisiana resident will be taken into account for
Louisiana individual and corporate income tax purposes. Distributions from and
investments in the Louisiana Fund by corporate shareholders who are otherwise
subject to the Louisiana corporate franchise tax will be included in the
capital of such corporations for Louisiana franchise tax purposes.
MARYLAND. Maryland has a diverse economy with government, services and mining,
and manufacturing and trade each accounting for approximately 20%, 31% and 32%
of employment, respectively. In recent years financial operations of the State
have concluded in ending surpluses, although in the early 1990s various cost
containment and tax revenue measures were required. State revenues are largely
dependent on income and sales and use taxes and, relatedly, on general levels
of employment, personal income growth and consumer spending. The national
slowdown, beginning in 1990, impacted the State with total employment
declining slightly in the early 1990s but recovering commencing in 1992.
Unemployment in Maryland for July 1995 was 5.0% versus the national rate of
5.9%.
Generally, Maryland has been among the most heavily indebted of the states. In
recent years increases in State general obligation debt have been controlled.
Since 1991, State tax-supported debt service and debt outstanding have been
less than 3.07% of personal income and 6.74% of State revenues, respectively.
Including local government debt, debt service as a percentage of total
revenues has risen from 8.88% in 1991 to 9.67% in 1994. It should be noted
that the creditworthiness of obligations issued by local Maryland issuers and
State revenue obligations may vary considerably from the creditworthiness of
general obligations bonds issued by the State, and that there is no obligation
on the part of the State to make payment on such local obligations in the
event of default.
The State of Maryland's general obligation bonds are rated AAA, Aaa and AAA,
by S&P, Moody's and Fitch, respectively. Both S&P and Fitch have a stable
outlook for the State.
MARYLAND TAXES. In the opinion of Piper & Marbury, L.L.P., special Maryland
tax counsel to the Maryland Fund, so long as the Maryland Fund qualifies to be
taxed as a regulated investment company in the manner set forth in Section 852
(b) of the Code holders of the Maryland Fund who are individuals, estates or
trusts and who are otherwise subject to Maryland State and local individual
income taxes will not be subject to such taxes on Maryland Fund dividends to
the extent that (a) such dividends qualify as exempt-interest dividends of a
regulated investment company under Section 852(b)(5) of the Code, which are
attributable to interest on tax-exempt obligations of the State of Maryland or
its political subdivisions or authorities, or obligations issued by the
government of Puerto Rico, U.S. Virgin Islands or Guam or their authorities
("Maryland tax-exempt obligations"), (b) such dividends are attributable to
interest on obligations of the U.S. Government or obligations issued or
guaranteed by the U.S. Government and its agencies, instrumentalities and
authorities ("U.S. obligations") or (c) such dividends are attributable to
gain realized by the Maryland Fund as a result of the sale or exchange by the
Maryland Portfolio of a bond issued by the State of Maryland or a political
subdivision thereof.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland State and local individual
income taxes.
Maryland presently includes in Maryland taxable income a portion of certain
items of tax preferences as defined in the Code. Interest paid on certain
private activity bonds constitutes such a tax preference. Accordingly, up to
50% of any distributions of the Maryland Fund attributable to such private
activity bonds may not be exempt from Maryland State and local individual
income taxes. The Maryland Portfolio has no present intention of investing in
such securities.
Shareholders of the Maryland Fund that are corporations otherwise subject to
Maryland corporate income tax will not be subject to such tax on Maryland Fund
dividends to the extent that (a) such dividends qualify as exempt-interest
dividends under Section 852(b)(5) of the Code which are attributable to
Maryland tax-exempt obligations or (b) such dividends are attributable to
interest on U.S. obligations.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland corporate income tax.
Shareholders of the Maryland Fund that are financial institutions otherwise
subject to Maryland financial institution franchise taxes will probably be
subject to such taxes on all distributions received from the Maryland Fund
(including exempt-interest dividends).
Interest on indebtedness incurred or continued (directly or indirectly) by a
shareholder of the Maryland Fund to purchase or carry shares of the Maryland
Fund will not be deductible for Maryland State and local individual income tax
purposes or corporate income tax purposes to the extent such interest is
allocable to exempt-interest dividends.
Shares of the Maryland Fund will not be subject to the Maryland personal
property tax.
MISSOURI. The State has a well balanced economy that approximates the national
economy. As a result, the State unemployment rate has typically remained close
to the national average. The civilian unemployment rate for August 1995 was
5.0% as compared to the September 1994 level of 3.9%. In the early 1990s, the
State had operating deficits resulting from lower collections than budgeted
due to the recession. The State's financial operations have been pressured by
the cost associated with the settlement of the desegregation lawsuit involving
the Kansas City and St. Louis school districts. For fiscal 1995, the cost of
the settlement was $315 million, approximately 7% of the General Fund budget.
A recent Supreme Court decision favorable to the State may decrease the level
of State funding required in the future, but the impact of this decision is
uncertain. Economic reversals in either of the Kansas City or St. Louis
metropolitan areas, whose Missouri portions together contain approximately
half of the State's population, would have a major impact on the State's
overall economic condition.
An amendment to the State Constitution limits the amount of state taxes which
may be imposed by the General Assembly, as well as the amount of local taxes,
licenses and fees which can be imposed by local governments in any fiscal
year. The details of the amendment are complex and clarification by subsequent
legislation or judicial decision may be necessary.
As of the date of this Prospectus, Missouri's general obligation of debt is
rated AAA, Aaa and AAA, by S&P, Moody's and Fitch, respectively.
MISSOURI TAXES. In the opinion of Bryan Cave, LLP, special Missouri tax
counsel to the Missouri Fund, so long as the Missouri Fund qualifies for
Federal income taxation as a regulated investment company and the Missouri
Portfolio is treated as a partnership for Federal tax purposes, dividends
distributed to individual shareholders of the Missouri Fund will be exempt
from the Missouri personal income tax imposed by Chapter 143 of the Missouri
Revised Statutes to the extent that such dividends qualify as exempt interest
dividends of a regulated investment company under Section 852(b)(5) of the
Code and are derived form interest on obligations of the United States, its
authorities, commissions, instrumentalities, possessions or territories to the
extent exempt from Missouri income taxes under the laws of the United States
(including Puerto Rico, Guam and the U.S. Virgin Islands), or of the State of
Missouri or its political subdivisions. Capital gain dividends, as defined in
Section 852(b)(3) of the Code, distributable by the Missouri Fund to
individual resident shareholders of the Missouri Fund, to the extent
includable in Federal adjusted gross income, will be subject to Missouri
income taxation. Shares in the Missouri Fund are not subject to Missouri
personal property taxes.
The Missouri Fund will notify its shareholders within 60 days after the close
of the year as to the amount of interest dividend from Missouri obligations
which is exempt from Missouri personal income taxation.
NORTH CAROLINA. North Carolina has an economy largely dependent on textile and
furniture manufacturing, and agriculture, although finance, services and trade
are becoming increasingly important. Manufacturing, which continues to be far
more important in North Carolina than in the nation, has been adversely
affected by international competition. Tobacco farming continues to be
affected by Federal legislation and regulatory measures and by international
competition. State personal wealth levels remain well below those of the
nation.
The North Carolina State Constitution requires that the total expenditures of
the State for a fiscal period shall not exceed the total of receipts during
the fiscal period and the surplus remaining in the State Treasury at the
beginning of the period. Apparently due to both increased tax and fee revenue
and the previously enacted spending reductions, the State had a budget surplus
of approximately $887 million at the end of fiscal 1993-94. After review of
the 1994-95 continuation budget adopted in 1993, the General Assembly approved
spending expansion funds, in part to restore certain employee salaries to
budgeted levels, which amounts had been deferred to balance the budgets in
1989-1993, and to authorize funding for new initiatives for economic
development, education, human services and environmental programs.
General obligations of the State of North Carolina are rated Aaa, AAA and AAA
by Moody's, S&P and Fitch, respectively. In July, 1992, S&P revised its
outlook for the State's general obligations from "Negative" to "Stable". Fitch
views the State's credit trend as "Stable".
NORTH CAROLINA TAXES. In the opinion of Hunton & Williams, special North
Carolina tax counsel to the North Carolina Fund, distributions from the North
Carolina Fund will not be subject to North Carolina individual, trust, or
estate income taxation to the extent that such distributions are either (i)
excluded from Federal gross income and represent interest the North Carolina
Fund, either directly or through the North Carolina Portfolio, receives on
obligations of North Carolina or its political subdivisions, nonprofit
educational institutions organized or chartered under the laws of North
Carolina, or Puerto Rico, U.S. Virgin Islands, or Guam or (ii) represent
interest the North Carolina Fund, either directly or through the North
Carolina Portfolio, receives on direct obligations of the United States. These
North Carolina income tax exemptions will be available only if the North
Carolina Fund complies with the requirement of the Code that at least 50% of
the value of its assets at the close of each quarter of its taxable years is
invested, either directly or through the North Carolina Portfolio, in state,
municipal, or other obligations described in (S)103(a) of the Code. The North
Carolina Fund intends to comply with that requirement.
Any capital gains distributed by the North Carolina Fund (except for capital
gain attributable to the sale by the North Carolina Fund or the North Carolina
Portfolio of an obligation the profit from which is exempt by North Carolina
statute) or gains realized by the shareholder from a redemption or sale of
shares of the North Carolina Fund will be subject to North Carolina
individual, trust, or estate income taxation.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the North Carolina Fund to purchase or carry shares of the North Carolina Fund
generally will not be deductible for North Carolina income tax purposes.
The opinion of Hunton & Williams is based on a ruling of the North Carolina
Department of Revenue obtained by Hunton & Williams on behalf of the North
Carolina Fund. That ruling is subject to change.
OREGON. Oregon remains slightly more sensitive to economic cycles than the
national average due to the forest products component of its economy.
Protection of the spotted owl under the Endangered Species Act may cause
timber harvest on Federal lands to be reduced significantly. In addition to
the general adverse economic impact that would be caused by harvest
reductions, a number of counties that receive substantial revenues directly
from Federal timber sales would suffer revenue losses. In addition, recent
economic projections indicate a slowing of the growth, particularly in the
areas of lumbering, construction, and retail trade. The State has committed
itself to greater diversification of the economy by pursuing more foreign
trade in the considerable markets of the Pacific Rim countries and the
location of high technology industries in Oregon. In September 1994, Oregon's
unemployment rate was 4.7%, compared to the nation's 5.9% rate.
As of the date of this Prospectus, Oregon's general obligation debt is rated
AA-, Aa and AA, by S&P, Moody's and Fitch, respectively. S&P revised the
outlook of Oregon's debt from Stable to Negative as a result of the increased
costs imposed by a constitutional property tax limitation ("Ballot Measure 5")
adopted by votes in 1990.
OREGON TAXES. In the opinion of Stoel, Rives, Boley, Jones & Grey, special
Oregon tax counsel to the Oregon Fund, individual shareholders of the Oregon
Fund will not be subject to Oregon personal income taxes on distributions
received from the Oregon Fund to the extent such distributions are
attributable to interest on tax-exempt obligations of the State of Oregon and
its political subdivisions and authorities or on tax-exempt obligations issued
by the Governments of Puerto Rico, the U.S.Virgin Islands and Guam, and
represent exempt interest dividends for Federal income tax purposes (Oregon
tax-exempt obligations).
Other distributions from the Oregon Fund, including dividends attributable to
obligations of issuers in other states and all long-term and short-term
capital gains, will not be exempt from personal income taxes in Oregon. The
Oregon Fund will report annually to its shareholders the percentage and
source, on a state-by state basis, of interest income received by the Oregon
Fund on municipal bonds during the preceding year.
No portion of distributions from the Oregon Fund are exempt from Oregon excise
tax on corporations. However, shares of the Oregon Fund are not subject to
Oregon property taxes.
SOUTH CAROLINA. The effect of the prolonged national recession on the State's
fiscal position has been significant, though in the past few years the State
has rebuilt its General Reserve Fund. Since the start of the 1993 fiscal year,
South Carolina has been forced to deal with revenue shortfalls. In July 1992,
original revenue estimates were revised downward by $195 million to $3.6
billion for fiscal year 1993. The State responded by cutting appropriations
including recurring and non-recurring spending and ended the fiscal year with
a $151 million surplus. Actual budgetary General Fund revenues and
expenditures for fiscal year 1994 were $4.021 billion and $3.776 billion,
respectively. There was a $248 million surplus of which $43.3 million was
deposited into the General Reserve Fund bringing its total to $110 million.
Fiscal 1995 had actual budgeted General Fund revenues and expenditures of
$4.233 billion and $3.984 billion, respectively. Fiscal 1995 ended with a
General Fund surplus of $248 million of which $10.5 million was deposited into
the General Reserve Fund fully funding it to $120.7 million. No new taxes were
introduced. $4.133 billion has been budgeted for fiscal 1996. Once again no
new taxes are in the budget.
Although dominated by the textile industry, South Carolina's economic base has
diversified in recent years as the trade and service sectors developed. With
increased added development in the durable goods manufacturing industries,
South Carolina's economy now resembles more closely that of the United States.
For August, 1995, unemployment in South Carolina was 4.9% compared with the
national rate of 5.6%.
South Carolina general obligations are rated Aaa, AA+ (positive), AAA
(stable), by Moody's, S&P and Fitch, respectively.
SOUTH CAROLINA TAXES. In the opinion of Nelson, Mullins, Riley & Scarborough,
L.L.P., special South Carolina tax counsel to the South Carolina Fund, under
existing South Carolina law as long as the South Carolina Fund qualifies as a
separate "regulated investment company" under the Code, shareholders of the
South Carolina Fund will not be required to include in their South Carolina
gross income distributions from the South Carolina Fund to the extent such
distributions qualify as "exempt-interest dividends" as defined in the Code,
which are directly attributable to interest received by the South Carolina
Fund on tax-exempt obligations issued by the State of South Carolina or its
political subdivisions or the United States. In the event the South Carolina
Fund fails to qualify as a separate "regulated investment company," the
foregoing exemption may be unavailable or substantially limited. The opinion
addresses the tax consequences when the South Carolina Fund invests directly
in these obligations. The application of these consequences to the South
Carolina Fund when investing in interests of another registered investment
company was ruled upon favorably by the South Carolina Tax Commission.
Capital gains distributed by the South Carolina Fund, or gains realized by a
shareholder from a redemption or sale of shares of the South Carolina Fund,
will be subject to South Carolina income taxes.
As intangible personal property, the shares of the South Carolina Fund are
exempt from any and all ad valorem taxation in South Carolina.
TENNESSEE. Historically, the Tennessee economy has been characterized by a
greater concentration in manufacturing employment than the U.S. as a whole.
The economy is, however, undergoing a structural change through the increase
in service sector employment. From the third quarter of 1992 to the third
quarter of 1993, 40.9% of employment growth occurred in the services sector.
The March, 1994 seasonally adjusted unemployment rate was 4.7%, as compared
with a national unemployment rate of 5.9%.
Tennessee's financial operations are considerably different than most other
states because there is no state payroll income tax. This factor, together
with the State's reliance on the sales tax for approximately 55% of General
Fund receipts, exposes total State tax collections to considerably more
volatility than would otherwise be the case and, in the event of an economic
downswing, could effect the State's ability to pay principal and interest in a
timely manner. Under the State constitution, no debt may be authorized for the
current operation of any State service or program unless repaid within the
fiscal year of issuance. Operating surpluses for 1992 and 1993 have built up
the General Fund balance to $150.1 million for 1993 from $7.3 million for
1991. For the fiscal year 1993, a 0.5% increase in the sales tax rate was
enacted and dedicated towards the implementation of certain educational
reforms enacted by the legislature.
Tennessee's general obligation debt is rated AA+, Aaa and AAA, by S&P, Moody's
and Fitch, respectively. S&P has a positive outlook for the State.
TENNESSEE TAXES. In the opinion of Hunton & Williams, special Tennessee tax
counsel to the Tennessee Fund, individual shareholders of the Tennessee Fund
will not be subject to Tennessee individual income tax on distributions
received from the Tennessee Fund to the extent such distributions are
attributable to interest the Tennessee Fund, either directly or through the
Tennessee Portfolio, receives on (i) bonds or securities of the U.S.
Government or any agency or instrumentality thereof, (ii) bonds of the State
of Tennessee or any county, municipality or political subdivision thereof,
including any agency, board, authority or commission, or (iii) bonds of Puerto
Rico, U.S. Virgin Islands or Guam.
The opinion of Hunton & Williams is based on a ruling of the Tennessee
Department of Revenue obtained by Hunton & Williams on behalf of the Tennessee
Fund. That ruling is subject to change. The Tennessee Fund will report
annually to its shareholders the percentage and source, on a state-by-state
basis, of interest income received by the Tennessee Fund on municipal bonds
during the preceding year.
On March 16, 1994, the Tennessee Fund received a letter ruling from the
Department of Revenue of the State of Tennessee to the effect that distributions
of capital gains from the Tennessee Fund attributable to tax-exempt securities
are exempt from Tennessee income tax. Tennessee Fund management believes that
Eaton Vance is the only mutual fund sponsor that has obtained such a ruling. The
ruling is subject to change under certain conditions.
VIRGINIA. The Constitution of Virginia requires a balanced budget and limits
the ability of the Commonwealth to create debt. General obligation debt may be
incurred to meet certain short-term needs, to finance capital projects and,
under less stringent restrictions, to finance revenue-producing capital
projects. Also, "special fund" revenue bonds, to which the constitutional debt
restrictions do not apply and which are not supported by the full faith and
credit of the Commonwealth, may be issued to finance qualifying Commonwealth
revenue projects.
General obligations of cities, towns and counties are payable from the general
revenues of the entity, including ad valorem tax revenues on property within
the jurisdiction. Revenue obligations issued by other entities are customarily
payable only from revenues from the particular project or projects involved.
The economy of Virginia is based primarily on manufacturing, the government
sector, agriculture, mining and tourism, and unemployment rates are typically
below the national average. June 1995 unemployment was 4.4% versus a national
rate of 5.6%. The Commonwealth has a long history of fiscal stability, due in
large part to a conservative financial philosophy, broad-based employment
opportunities and diverse sources of revenue. In the past decade, however, the
Commonwealth has experienced cycles of financial stringency. No significant
new taxes or increases were enacted by the General Assembly at the 1995
session.
As a result of litigation involving proceedings before the United States
Supreme Court, the Commonwealth may be obligated to refund tax payments made
by federal pensioners of up to $707.5 million. Legislation has been enacted to
effect a settlement of the litigation, but the claimants have not accepted its
terms.
General obligations of Virginia are rated Aaa, AAA, and AAA by Moody's, S&P
and Fitch, respectively.
VIRGINIA TAXES. In the opinion of Hunton & Williams, special Virginia tax
counsel to the Virginia Fund, under existing Virginia law, distributions from
the Virginia Fund will not be subject to Virginia individual, trust, estate,
or corporate income taxation to the extent that such distributions are either
(i) excluded from federal gross income and attributable to interest the
Virginia Fund, either directly or through the Virginia Portfolio, receives on
obligations of Virginia, its political subdivisions, or its instrumentalities,
or Puerto Rico, U.S. Virgin Islands, or Guam or (ii) attributable to interest
the Virginia Fund, either directly or through the Virginia Portfolio, receives
on direct obligations of the United States. These Virginia income tax
exemptions will be available only if the Virginia Fund complies with the
requirement of the Code that at least 50% of the value of its assets at the
close of each quarter of its taxable year is invested, either directly or
through the Virginia Portfolio, in state, municipal, or other obligations
described in (S) 103 (1) of the Code. The Virginia Fund intends to comply with
that requirement.
Other distributions from the Virginia Fund, including capital gains, generally
will not be exempt from Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry shares of the Virginia Fund generally will not be deductible
for Virginia income tax purposes.
Neither the Trust nor the Virginia Fund will be subject to any Virginia
intangible property tax on any obligations in the Virginia Portfolio. In
addition, shares of the Virginia Fund held for investment purposes will not be
subject to any Virginia intangible personal property tax.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly
from fiscal 1984 through fiscal 1990, the rate of this expansion slowed during
fiscal years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Although the Puerto Rico unemployment rate has declined
substantially since 1985, the seasonally adjusted unemployment rate for June,
1995 was approximately 13.9%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, could lead to the loss of Puerto
Rico's lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance
on nonrecurring revenues and economic weakness led S&P to change its outlook
from stable to negative.
<PAGE>
[LOGO]
EV MARATHON MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
JANUARY 1, 1996
EV MARATHON ALABAMA MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND
EV MARATHON MISSOURI MUNICIPALS FUND
EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON VIRGINIA MUNICIPALS FUND
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(617) 482-8260
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
M-TFCI/IP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1996
EV CLASSIC MUNICIPALS FUNDS
EV CLASSIC ALABAMA MUNICIPALS FUND EV CLASSIC MISSOURI MUNICIPALS FUND
EV CLASSIC ARKANSAS MUNICIPALS FUND EV CLASSIC NORTH CAROLINA MUNICIPALS FUND
EV CLASSIC GEORGIA MUNICIPALS FUND EV CLASSIC OREGON MUNICIPALS FUND
EV CLASSIC KENTUCKY MUNICIPALS FUND EV CLASSIC SOUTH CAROLINA MUNICIPALS FUND
EV CLASSIC LOUISIANA MUNICIPALS FUND EV CLASSIC TENNESSEE MUNICIPALS FUND
EV CLASSIC MARYLAND MUNICIPALS FUND EV CLASSIC VIRGINIA MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate Part I includes cross-references
to the relevant sections of Part II.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I Page PART II Page
<S> <C> <C>
Additional Information about Investment Policies .... 1 EV Classic Alabama Municipals Fund .................. a-1
Investment Restrictions ............................. 8 EV Classic Arkansas Municipals Fund ................. b-1
Trustees and Officers ............................... 9 EV Classic Georgia Municipals Fund .................. c-1
Investment Adviser and Administrator ................ 10 EV Classic Kentucky Municipals Fund ................. d-1
Custodian ........................................... 13 EV Classic Louisiana Municipals Fund ................ e-1
Service for Withdrawal .............................. 13 EV Classic Maryland Municipals Fund ................. f-1
Determination of Net Asset Value .................... 14 EV Classic Missouri Municipals Fund ................. g-1
Investment Performance .............................. 14 EV Classic North Carolina Municipals Fund ........... h-1
Taxes ............................................... 16 EV Classic Oregon Municipals Fund ................... i-1
Principal Underwriter ............................... 18 EV Classic South Carolina Municipals Fund ........... j-1
Distribution Plan ................................... 18 EV Classic Tennessee Municipals Fund ................ k-1
Portfolio Security Transactions ..................... 20 EV Classic Virginia Municipals Fund ................. l-1
Other Information ................................... 21
Independent Certified Public Accountants ............ 22
Financial Statements ................................ 23
Appendix ............................................ 24
</TABLE>
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JANUARY 1, 1996 AS SUPPLEMENTED FROM
TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ
IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this Statement of
Additional Information and not otherwise defined have the meanings given them in
the Fund's Prospectus. The Fund is subject to the same investment policies as
those of the Portfolio. The Fund currently seeks to achieve its objective by
investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is also exempt from federal income taxes and is not a tax preferred item
for purposes of the federal alternative minimum tax: (i) certain "public
purpose" obligations (whenever issued), which include obligations issued
directly by state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986, which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of interest on
any municipal obligation, the Portfolio will generally rely on an opinion of the
issuer's counsel (when available) and will not undertake any independent
verification of the basis for the opinion. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adusted current earnings" for purposes of the
federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does have original issue discount or (ii) in
the case of an obligation that does have original issue discount, the sum of the
issue price and any original issue discount that accrued before the obligation
was purchased, subject to a de minimus amount.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are in most cases revenue bonds and are
generally not secured by the taxing power of the municipality, but are usually
secured by the revenues derived by the authority from payments of the industrial
user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of Boston Management and Research (the
"Investment Adviser")) to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by the Portfolio as a
result of any such event, and the Portfolio may also manage (or engage other
persons to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing various
municipal obligations in its portfolio or subsequently acquired by the
Portfolio. The Portfolio will incur additional expenditures in taking protective
action with respect to portfolio obligations in default and assets securing such
obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") and Fitch Investors Service, Inc. ("Fitch") represent
their opinions as to the quality of the municipal obligations which they
undertake to rate. It should be emphasized, however, that ratings are based on
judgment and are not absolute standards of quality. Consequently, municipal
obligations with the same maturity, coupon and rating may have different yields
while obligations of the same maturity and coupon with different ratings may
have the same yield. In addition, the market price of such obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II of
this Statement of Additional Information.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in the industrial
revenue bonds listed above might involve without limitation the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible Federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Pollution control and other industrial development bonds are issued by state
or local agencies to finance various projects, including those of domestic steel
producers, and may be backed solely by agreements with such companies. Domestic
steel companies are expected to suffer the consequences of such adverse trends
as high labor costs, high foreign imports encouraged by foreign productivity
increases and a strong U.S. dollar, and other cost pressures such as those
imposed by anti-pollution legislation. Domestic steel capacity is being reduced
currently by large-scale plant closings and this period of rationalization may
not end until further legislative protection is provided through tariff price
supports or mandatory import quotas, such as those recently enacted for certain
specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
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 February, 1995 unemployment rate was 12.5%, down from 16% for
1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the Federal government. Most Federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the 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. For 1994,
the financial position of Guam has weakened further as it incurred an unaudited
General Fund operating deficit. The administration has taken steps to improve
its financial position; however, there are no guarantees that an improvement
will be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell securities in anticipation of a market decline (a
rise in interest rates) or purchase and later sell securities in anticipation of
a market rise (a decline in interest rates). In addition, a security may be sold
and another purchased at approximately the same time to take advantage of what
the Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand for or
supply of various types of municipal obligations or changes in the investment
objectives of investors. Such trading may be expected to increase the portfolio
turnover rate, which may increase capital gains and the expenses incurred in
connection with such trading. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less).
WHEN ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-
issued" basis, that is, delivery and payment for the securities normally taking
place within a specified number of days after the date of the Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. The Portfolio may also purchase securities on a
when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-issued
basis it records the transaction and reflects the value of the security in
determining its net asset value. Securities purchased on a when-issued basis and
the securities held by the Portfolio are subject to changes in value based upon
the perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e. appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased securities
on a when- issued basis, there will be greater fluctuations in the Portfolio's
net asset value than if it solely set aside cash to pay for when-issued
securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 and Rule 5b-2 thereunder. The Portfolio would anticipate using these
obligations as cash equivalents pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. Longer term fixed-rate bonds
may give the holder a right to request redemption at certain times (often
annually after the lapse of an intermediate term). These bonds are more
defensive than conventional long term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, because the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Since this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets. The Portfolio has no present intention of engaging in securities
lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price fluctuations
in securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases, when
it is economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the corresponding
purchase of securities. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Internal Revenue Code for maintaining qualification
of the Fund as a regulated investment company for Federal income tax purposes
(see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits, which
will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this Statement of Additional Information means the lesser of (a) 67% of the
shares of the Fund present or represented by proxy at a meeting if the holders
of more than 50% of the shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance margin
in connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Nake loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund; the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this Statement
of Additional Information means the lesser of (a) 67% of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented at the meeting or (b) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the Investment Company Act of
1940 (the "1940 Act"). Whenever the Trust is requested to vote on a change in
the fundamental investment restrictions of the Portfolio (or the Portfolio's 80%
investment policy with respect to State obligations described in the Fund's
current Prospectus), the Trust will hold a meeting of Fund shareholders and will
cast its vote as instructed by the shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short; (c) invest more than 15%
of net assets in investments which are not readily marketable, including
restricted securities and repurchase agreements maturing in more than seven
days. Restricted securities for the purposes of this limitation do not include
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 that the Board of Trustees of the Trust or the Portfolio, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security; (d) purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust or the Portfolio or is a member, officer,
director or trustee of any investment adviser of the Trust or the Portfolio, if
after the purchase of the securities of such issuer by the Fund or the Portfolio
one or more of such persons owns beneficially more than 1/2 of 1% of the shares
or securities or both (all taken at market value) of such issuer and such
persons owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities or both (all taken at
market value); or (e) purchase oil, gas or other mineral leases or purchase
partnership interests in oil, gas or other mineral exploration or development
programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, 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 (69), Trustee
Director, Fiduciary Company Incorporated, Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March
22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodubury was elected Assistant
Secretary on Jun 19, 1995.
For additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II of this Statement of Additional Information.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the Portfolio in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of approximately $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.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The following persons manage one or more of the Eaton Vance
tax-free portfolios. For the identity of the Portfolio's portfolio manager, see
the Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part II
of this Statement of Additional Information.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others and engage in other
business activities and may permit other fund clients and other corporations and
organizations to use the words "Eaton Vance" or "Boston Management and Research"
in their names. The Agreement also provides that BMR shall not be liable for any
loss incurred in connection with the performance of its duties, or action taken
or omitted under that Agreement, in the absence of willful misfeasance, bad
faith, gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties thereunder, or for any losses
sustained in the acquisition, holding or disposition of any security or other
investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust, which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of October
31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders are
officers of the Trust and/or the Portfolio and are also members of the BMR,
Eaton Vance and EV organizations. BMR will receive the fees paid under the
Investment Advisory Agreement.
EVC owns all of the stock of 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.
In addition, Eaton Vance owns all of the stock of Northeast Properties, Inc.,
which is engaged in real estate investment, consulting and management. EVC owns
all of the stock of Fulcrum Management, Inc. and MinVen Inc., which are engaged
in the development of precious metal properties. EVC, 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 custody fees that the Portfolio
and the Fund paid to IBT, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal accounts will be credited at net asset value as of
the record date for each distribution. Continued withdrawals in excess of
current income will eventually use up principal, particularly in a period of
declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) will have to be deposited with the
Transfer Agent. A shareholder may not have a withdrawal plan in effect at the
same time he or she has authorized Bank Automated Investing or is otherwise
making regular purchases of Fund shares. The shareholder, the Transfer Agent or
the Principal Underwriter will be able to terminate the withdrawal plan at any
time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total assets.
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a when- issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing services uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by the Trustees of the Portfolio.
The Fund and the Portfolio will be closed for business and will not price their
respective shares or interests on the following business holidays: New Year's
Day, Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
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 result. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period and a complete
redemption of the investment and, if applicable, the deduction of the contingent
deferred sales charge at the end of the period. For information concerning the
total return of the Fund, see "Performance Information" in the Fund's Part II of
this Statement of Additional Information.
The Fund's yield is computed pursuant to a standardized formula by dividing
the net investment income per share earned during a recent thirty-day period by
the maximum offering price (net asset value) per share on the last day of the
period and annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for the
period with the resulting number being divided by the average daily number of
Fund shares outstanding and entitled to receive dividends during the period.
This yield figure does not reflect the deduction of the contingent deferred
sales charge imposed on certain redemptions of shares within one year of their
purchase. See "How to Redeem Fund Shares" in the Prospectus. A
taxable-equivalent yield is computed by dividing the tax-exempt yield by 1 minus
a stated rate. For the yield and taxable-equivalent yield of the Fund, see
"Performance Information" in the Fund's Part II of this Statement of Additional
Information.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio (the days in a year divided by the accrual days
of the monthly period) used to annualize the most recent monthly distribution
and reinvesting the resulting amount for a full year on the basis of such ratio.
The effective distribution rate will be higher than the distribution rate
because of the compounding effect of the assumed reinvestment. Investor's should
note that the Fund's yield is calculated using a standardized formula, the
income component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month. See "Distributions
and Taxes" in the Fund's current Prospectus. For the Fund's distribution rate
and effective distribution rate, see "Performance Information" in the Fund's
Part II of this Statement of Additional Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and the
Lehman Brothers Municipal Bond Index. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished to
present or prospective shareholders. The Fund's performance may differ from that
of other investors in the Portfolio, including other investment companies.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
From time to time 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.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100, if the annual rates of
inflation during such period were 4%, 5%, 6% and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about portfolio allocation and holdings of
the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's, S&P and Fitch) may be included in
advertisements and other material furnished to present and prospective
shareholders. Such information may be stated as a percentage of the Portfolio's
bond holdings on such date. For an example of the Portfolio's diversification by
quality ratings, see "Performance Information" in the Fund's Part II of this
Statement of Additional Information.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit accounts
and money market mutual funds over various income tax brackets.
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze."
For additional information, charts and illustrations relating to the Fund's
investment performance, see "Performance Information" in the Fund's Part II of
this Statement of Additional Information.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for Federal income
tax purposes. The Fund has elected to be treated, and intends to qualify each
year, as a regulated investment company ("RIC") under the Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Fund intends to satisfy
certain requirements relating to sources of its income and diversification of
its assets and to distribute its net investment income (including tax-exempt
income) and net realized capital gains in accordance with the timing
requirements imposed by the Code, so as to avoid any Federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended August 31, 1995
(see the Notes to the Financial Statements incorporated by reference in this
Statement of Additional Information). Because the Fund invests its assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, the Portfolio's net taxable (if any) and tax-exempt investment income, net
realized capital gains, and any other items of income, gain, loss, deduction or
credit. For purposes of applying the requirements of the Code regarding
qualification as a RIC, the Fund will be deemed (i) to own its proportionate
share of each of the assets of the Portfolio and (ii) to be entitled to the
gross income of the Portfolio attributable to such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
Federal income tax. Under current law, provided that the Fund qualifies as a RIC
for Federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular Federal income tax. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under Federal tax legislation
enacted in 1986, the Federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when- issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax exempt interest earned by
the Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising are borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under Federal and state securities laws
are borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Fund's Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding voting securities of the Fund or on six
months' notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund has authorized the Principal Underwriter to act as its
agent in repurchasing shares at the rate of $2.50 for each repurchase
transaction handled by the Principal Underwriter. The Principal Underwriter
estimates that the expenses incurred by it in acting as repurchase agent for the
Fund will exceed the amounts paid therefor by the Fund. For the amount paid by
the Fund to the Principal Underwriter for acting as repurchase agent, see "Fees
and Expenses" in the Fund's Part II of this Statement of Additional Information.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of such a liability under accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges therefore paid or payable to the Principal Underwriter
will be subtracted from such distribution charges; if the result of such
subtraction is positive, a distribution fee (computed at 1% over the prime rate
then reported in The Wall Street Journal) will be computed on such amount and
added thereto, with the resulting sum constituting the amount of outstanding
Uncovered Distribution Charges with respect to such day. The amount of
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated on any day does not constitute a liability recorded on the financial
statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Classic Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan. (For shares sold prior to January 30, 1995,
Plan payments are as follows: the Principal Underwriter pays monthly sales
commissions and service fee payments to Authorized Firms equivalent to
approximately .75% and .15%, respectively, annualized of the assets maintained
in the Fund by their customers beginning at the time of sale. No payments were
made at the time of sale and there is no contingent deferred sales charge.)
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal Underwriter
and service fees to the Principal Underwriter and Authorized Firms which may be
equivalent, on an aggregate basis during any fiscal year of the Fund, to .90% of
the Fund's average daily net assets for such year. For the sales commission and
service fee payments made by the Fund and the outstanding Uncovered Distribution
Charges of the Principal Underwriter, see "Fees and Expenses -- Distribution
Plan" in the Fund's Part II of this Statement of Additional Information. The
Fund believes that the combined rate of all these payments may be higher than
the rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the Principal Underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at the
time of sale, it is anticipated that the Eaton Vance organization will profit by
reason of the operation of the Plan through an increase in the Fund's assets
(thereby increasing the advisory fee payable to BMR by the Portfolio) resulting
from the sale of Fund shares and through the amounts paid to the Principal
Underwriter, including contingent deferred sales charges, pursuant to the Plan.
The Eaton Vance organization may be considered to have realized a profit under
the Plan if at any point in time the aggregate amounts therefore received by the
Principal Underwriter pursuant to the Plan and from contingent deferred sales
charges have exceeded the total expenses theretofore incurred by such
organization in distributing shares of the Fund. Total expenses for this purpose
will include an allocable portion of the overhead costs of such organization and
its branch offices, which costs will include without limitation leasing expense,
depreciation of building and equipment, utilities, communication and postage
expense, compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton Vance
organization in a manner deemed equitable to the Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Trust who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of
the Trustees then in office, and the Distribution Agreement contains a similar
provision. The Plan and Distribution Agreement may be terminated at any time by
a vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund. The provisions of the Plan
relating to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Under the Plan the President
or a Vice President of the Trust shall provide to the Trustees for their review,
and the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which have benefited and will continue to benefit the Fund and its
shareholders. Payments for sales commissions and distribution fees made to the
Principal Underwriter under the Plan will compensate the Principal Underwriter
for its services and expenses in distributing shares of the Fund. Service fee
payments made to the Principal Underwriter and Authorized Firms under the Plan
provide incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Portfolio from
time to time, it is the opinion of the Trustees of the Trust and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
OTHER INFORMATION
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. The Trust, which is a Massachusetts
business trust established in 1985, was originally called Eaton Vance High Yield
Municipals Trust. The Trust changed its name to Eaton Vance Municipals Trust on
January 7, 1991.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable Federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Deloitte & Touche
LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche, LLP, independent certified public
accountants, as experts in accounting and auditing.
Registrant incorporates by reference the audited financial information for
the Fund's and the Portfolio's for the fiscal year ended August 31, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950135-95-002234).
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 or P-1 repayment
ability will often be evidenced by many of the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2
Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3
Issuers (or supporting institutions) rated Prime-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
l: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
S&P's commercial paper ratings are a current assessments of the likelihood of
timely payment of debts considered short-term in the relevant market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F- 1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC ALABAMA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Alabama State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Alabama Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Alabama considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Alabama issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Alabama issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Alabama's business cycle is closely related to the national economy, due
to its manufacturing based economy. The State's economy has changed little in
the past few years. Growth in machinery, aerospace and electronic
manufacturing have become increasingly important to the State. The present
movement toward diversification of the State's manufacturing base and a
similar trend toward enlargement and diversification of the service industries
are expected to lead to increased stability. With its strong natural gas and
oil deposits, Alabama is well positioned in energy markets. An important
factor affecting the economy is the State owned Port of Mobile which primarily
handles coal exports and serves as a major Gulf Coast port. The Port of Mobile
is one of the nation's busiest ports in tons of cargo handled.
Although manufacturing remains the largest employment sector, the State
economy has become less dependent on manufacturing. Strong growth in the
service and wholesale/retail trade sectors combined with a weakening
manufacturing sector has enabled the economy to become more diverse. However,
its reliance on the manufacturing sector remains significantly greater than
the national average. In the past several years, the loss of manufacturing
jobs has been primarily as a result of weakness in the durable good sector.
Overall, non-agricultural employment has steadily grown during the past five
years.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $118,486,053. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$466,320 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $373,047 (equivalent to 0.38% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $123,740
(equivalent to 0.31% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $11,742 and
$13,973, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans"
in the Prospectus. Pursuant to Rule 12b-1, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid to Authorized Firms sales commissions of
$76,033 on sales of Fund shares. During the same period, the Fund paid sales
commission payments under the Plan to the Principal Underwriter aggregating
$77,307. Such payments reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $85 were
imposed on early redeeming shareholders and paid to the Principal Underwriter
to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $870,170 (which amount was
equivalent to 9.2% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $20,392, of which $20,390 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $217.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,416. For
the fiscal year ended August 31, 1995, the Portfolio paid IBT $16,491.
BROKERAGE
For the fiscal year ended August 31, 1995, and for the period from the
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995, earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ----------- ------------------
Donald R. Dwight .......... $33 $1,563(2) $135,000(4)
Samuel L. Hayes, III ...... 32 1,608(3) 150,000(5)
Norton H. Reamer .......... 31 1,631 135,000
John L. Thorndike ......... 32 1,718 140,000
Jack L. Treynor ........... 34 1,647 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) has served as a Vice President of the
Portfolio since June 19, 1995. Mr. Browse has been a Vice President of BMR and
Eaton Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse
is an officer of various investment companies managed by Eaton Vance or BMR.
Prior to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader --
Fidelity Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund from May 1, 1992 through August 31, 1995 and for the one year period
ended August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 7, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
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.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVEST- INVEST-
MENT BEFORE DE- MENT AFTER DE-
DUCTING THE DUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
CON- CON- DEDUCTING DEDUCTING
TINGENT TINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 5/1/92 $1,000 $1,237.75 $1,237.75 23.78% 6.59% 23.78% 6.59%
1 Year
Ended
8/31/95<F2> 8/31/94 $1,000 $1,069.01 $1,059.01 6.90% 6.90% 5.90% 5.90%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
<FN>
- ----------
<F1> No contingent deferred sales charge is imposed on shares purchased more than
one year prior to the redemption, shares acquired through the reinvestment
of distributions, or 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 Fund's current Prospectus.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.35%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.35% would be 6.64%,
assuming a combined Federal and State tax rate of 34.45%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.43%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.52%. 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.
<PAGE>
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 58.5%
Aa or AA 6.7
A 12.8
Baa or BBB 19.7
Ba or BB --
B --
Below B --
Not rated 2.3
-----
Total 100.0%
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 5.0% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used are the combined
Federal and Alabama State income tax brackets applicable for 1995: 19.25% for
single filers with taxable income up to $23,350 and joint filers up to
$39,000; 31.60% for single filers with taxable income from $23,351 to $56,550
and joint filers from $39,001 to $94,250; 34.45% for single filers with
taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 39.20% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 42.62% for single and
joint filers with taxable income over $256,500. The applicable Federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36%, and
39.6%, over the same ranges of income. The assumed Alabama State income tax
rate is 5%. The combined brackets are not simply the sum of each of the taxes,
as they assume that State taxes are deducted on the Federal income tax return,
reducing the effective combined tax brackets. 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 may
be subject to higher combined tax rates than indicated above. Investors should
consult with their tax advisers for additional information.
TAX BRACKET
19.25% 31.60% 34.45% 39.20% 42.62%
----------------------------------------------
Tax free yield ............... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ......... 6.19 7.31 7.63 8.22 8.71
Certificates of deposit:
Yield .................. 3.25 3.25 3.25 3.25 3.25
After-tax yield ........ 2.62 2.22 2.13 1.98 1.86
Classic Alabama
The Tax Free Yield Advantage
(39.20% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.98% After-tax yield
5.00% Tax free investment
8.22% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,274.00) NONE
After-tax
income: $1,976.00 $5,000.00
<PAGE>
The 1995 combined tax bracket takes into account Federal and Alabama State
income taxes. Assuming the deductibility of State taxes on the Federal return,
the bracket is 39.20% 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 (Sources: The Wall Street Journal and Eaton Vance Management). Tax
free yields are shown for illustration purposes only and are not meant to
represent actual results of an investment in the Fund. See your financial
adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 15, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 85.2% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. To the knowledge of the Trust, no other person
beneficially owns more than 5% of the Fund's outstanding shares.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Alabama Tax Free Fund to EV Classic Alabama
Municipals Fund on January 1, 1995.
<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 and Alabama State income tax laws and tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND ALABAMA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL A 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- AL 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 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 31.60% 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 56,551-$117,950 $ 94,251-$143,600 34.45% 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$117,951-$256,500 $143,601-$256,500 39.20% 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $256,500 Over $256,500 42.62% 6.97 7.84 8.71 9.59 10.46 11.33 12.20
<FN>
<F1> Net amount subject to Federal and Alabama personal income tax after
deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Alabama tax rate
within the bracket. Taxpayers with taxable income within this bracket may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax rates assume that Alabama taxes are itemized
Deductions for Federal income tax purposes. Investors who do not itemize
deductions on their Federal Income Tax Return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above.
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 Alabama State income taxes)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course, no assurance can be given that EV Classic Alabama Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and Alabama 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 Alabama personal income taxes. It
should also be noted that the interest earned on certain "private activity"
bonds issued after August 7, 1986, while exempt from the regular Federal
income tax, is treated as a tax preference item which could subject the
recipient to the Federal alternative minimum tax. The illustrations assume
that the Federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC ARKANSAS MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Arkansas State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Arkansas Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Arkansas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Arkansas issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Arkansas issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Constitution of the State does not limit the amount of general
obligation bonds which may be issued by the State; however, no such bonds may be
issued unless approved by the voters of the State at a general election or a
special election held for that purpose. There is no constitutional limitation on
the aggregate principal amount of revenue bonds that may be issued by the State
and its agencies. All revenue bonds and notes are secured only by specific
revenue streams and neither the general revenues of the State nor its full faith
and credit are pledged to repayment.
Pursuant to the Revenue Stabilization Law, the General Assembly must enact
legislation to provide for an allotment process of funding appropriations in
order to comply with State law prohibiting deficit spending whereby spending is
limited to actual revenues received by the State. The Governor may restrict
spending to a level below the level of appropriations. Pursuant to the
Stabilization Act, the General Assembly establishes five levels of priority for
general revenue spending, levels "A," "B," "B-1," "C" and "C-1". Successive
levels of appropriations are funded only in the event sufficient revenues have
been generated to fully fund any prior level. Accordingly, appropriations made
to programs and agencies are only maximum authorizations to spend. Actual
expenditures are limited to the lesser of (i) moneys flowing into a program or
agency's fund maintained by the Treasurer or (ii) the maximum appropriation by
the General Assembly. Since State revenues are not collected throughout the year
in a pattern consistent with program and agency expenditures, a budget revolving
fund, which receives interest earnings from State fund investments, has been
established and is utilized to assure proper cash flow during any period.
One-half of all moneys deposited into the budget revolving fund ultimately are
utilized to supplement the State's capital construction program and the balance
is distributed to programs and agencies funded from general revenues.
The State operates under a biennial budgeting system with July 1, 1995
beginning the current biennium. The State ended fiscal 1994 in balance as
required by the Revenue Stabilization Act. Net available general revenue growth
for fiscal 1994 was 9%.
FEES AND EXPENSES
INVESTMENT ADVISER
As at August 31, 1995, the Portfolio had net assets of $81,535,002. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$296,231 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $172,691 (equivalent to 0.38%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $88,417. The Portfolio's Investment Advisory Agreement with
BMR is dated February 1, 1994 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
February 9, 1994, to the fiscal year ended August 31, 1994, $15,164 and $13,217,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended August 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $3,904 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $4,353. Such payments reduced Uncovered Distribution
Charges. During such period, contingent deferred sales charges aggregating
approximately $7 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $52,000 (which
amount was equivalent to 9.7% of the Fund's net assets on such date). During the
fiscal year ended August 31, 1995, the Fund paid service fee payments under the
Plan aggregating $1,151, of which $1,041 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $12.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $2,881. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $23,999.
BROKERAGE
For the fiscal year ended August 31, 1995, and for the period from the start
of business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ----------- ------------------
Donald R. Dwight .......... $0 $1,164(2) $135,000(4)
Samuel L. Hayes, III ...... 0 1,222(3) 150,000(5)
Norton H. Reamer .......... 0 1,254 135,000
John L. Thorndike ......... 0 1,336 140,000
Jack L. Treynor ........... 0 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $436 of deferred compensation.
(3) Includes $559 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Timothy T. Browse (36) has served as a Vice President of the Portfolio since
June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton Vance since
1993 and an employee of Eaton Vance since 1992. Mr. Browse is an officer of
various investment companies managed by Eaton Vance or BMR. Prior to Joining
Eaton Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from October 2, 1992 through August 31, 1995 and for the one year period
ended August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on February 9, 1994 reflects 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.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 10/2/92 $1,000 $1,202.79 $1,202.79 20.28% 6.53% 20.28% 6.53%
1 Year
Ended
8/31/95<F2> 8/31/94 $1,000 $1,055.17 $1,045.17 5.52% 5.52% 4.52% 4.52%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other shares
in the account, and no such charge is imposed on exchanges of Fund shares
for shares or one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current Prospectus.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 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 6.79%, assuming a
combined federal and State tax rate of 35.83%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.48%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.58%. 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.
<PAGE>
The Portfolio's diversification by quality ratings as of September 30, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 37.4%
Aa or AA 11.4
A 30.2
Baa or BBB 15.4
vB --
Below B --
Not rated 5.6
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 4.5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Arkansas income tax brackets applicable for 1995: 20.95% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 33.04% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250; 35.83% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 40.48% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 43.83% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
assumed Arkansas State income tax rate is 7%. The combined brackets are not
simply the sum of each of the taxes, as they assume that State taxes are
deducted on the federal income tax return, reducing the effective combined tax
brackets. These brackets do not take into account the phaseout of personal
exemptions and limitation on deductibility of itemized deductions over certain
ranges of income. Investors who do not itemize or who are subject to such
phaseout or limitation will have a higher combined tax bracket than indicated
above. Investors should consult with their tax adviser for additional
information. These illustrations are not meant to imply any future rate of
return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.95% 33.04% 35.83% 40.48% 43.83%
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent ............. 5.69 6.72 7.01 7.56 8.01
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.57 2.18 2.09 1.93 1.83
</TABLE>
Classic Arkansas
The Tax Free Yield Advantage
(40.48% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.93% After-tax yield
4.50% Tax free investment
7.56% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments
3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,315.60) NONE
After-tax
income: $1,934.40 $4,500.00
<PAGE>
The 1995 combined tax bracket takes into account federal and Arkansas State
income taxes. Assuming the deductibility of State taxes on the federal return,
the bracket is 40.48% 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 represent actual
results of an investment in the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 19.4% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date the following shareholders owned beneficially and
of record the percentages of outstanding shares of the Fund indicated after
their names: Painewebber for the Benefit of Johnnie Lile Sullinger TTEE The
Johnnie Lile Sullinger Trust, dtd 8/7/92, Little Rock, AR (18.9%); Delmer L.
O'Bar & Willene E. O'Bar & Jimmy L. O'Bar & Deborah L. Crane Jt Ten, Scranton,
AR (18.1%); Painewebber for the Benefit of Doris Kinard Byrd Rev Trust, Doris
Kinard Byrd TTEE dtd 1/20/94, No. Little Rock, AR (10.2%); Edward D. Jones and
Co. F/A/O Robert E. Bonham & Vivian J. Bonham TTEES, Maryland Heights, MO (5.1%)
and Paul A. Paladino, Russellville, AR (5.1%). To the knowledge of the Trust, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7,1991. The Fund changed its
name from EV Classic Arkansas Tax Free Fund to EV Classic Arkansas Municipals
Fund on January 1, 1996.
<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
and Arkansas State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND ARKANSAS STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN AR STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -------------------------------------------------------------------
(TAXABLE INCOME)<F1> 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 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551 - $117,950 $ 94,251 - $143,600 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$117,951 - $256,500 $143,601 - $256,500 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $256,500 Over $256,500 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
<FN>
<F1> Net amount subject to federal and Arkansas personal income tax after
deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Arkansas tax rate
within the bracket. Taxpayers with taxable income within this bracket may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax rates assume that Arkansas taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above.
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 Arkansas 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 Arkansas Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Arkansas 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 Arkansas personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC GEORGIA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Georgia State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Georgia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Georgia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Georgia issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Georgia issuers. Neither
the Trust nor the Portfolio has independently verified this information.
The Georgia Constitution provides that the State may incur public debt of
two types for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred to acquire, construct,
develop, extend, enlarge or improve land, waters, property, highways, buildings,
structures, equipment or facilities of the State, its agencies, departments,
institutions and certain State authorities, to provide educational facilities
for county and independent school systems, to provide public library facilities
for county and independent school systems, counties, municipalities, and boards
of trustees of public libraries or boards of trustees of public library systems,
to make loans to counties, municipal corporations, political subdivisions, local
authorities and other local government entities for water or sewerage facilities
or systems, and to make loans to local government entities for regional or
multijurisdictional solid waste recycling or solid waste facilities or systems.
No general obligation debt may be incurred, however, when the highest aggregate
annual debt service requirements for the then current year or any subsequent
year for outstanding general obligation debt and guaranteed revenue debt,
including any proposed debt, and the highest aggregate annual payments for the
then current year or any subsequent fiscal year of the State under certain State
contracts, exceed ten percent of the total revenue receipts, less refunds, of
the State Treasury in the fiscal year immediately preceding the year in which
the debt is to be incurred. In addition, no general obligation debt may be
incurred with a term in excess of twenty-five years.
Guaranteed revenue debt may be incurred by guaranteeing the payment of
certain revenue obligations issued by an instrumentality of the State. No
guaranteed revenue debt may be incurred to finance water or sewage treatment
facilities or systems when the highest aggregate annual debt service
requirements for the then current year or any subsequent fiscal year of the
State for outstanding or proposed guaranteed revenue debt for water or sewerage
facilities or systems exceed one percent of the total revenue receipts, less
refunds, of the State Treasury in the fiscal year immediately preceding the year
in which any debt is to be incurred. In addition, the aggregate amounts of
guaranteed revenue debt incurred to make loans for educational purposes may not
exceed $18 million, and the aggregate guaranteed revenue debt incurred to
purchase, or to lend or deposit against the security of, loans for educational
purposes that may be outstanding may not exceed $72 million.
As of July 31, 1995, the State's outstanding general obligation debt was
$4,279,170,000. The State had outstanding at July 31, 1995, $185,135,000 of
guaranteed revenue debt.
In addition to the State's general obligation debt and guaranteed revenue
debt, the State had outstanding at June 30, 1995, $1,030,000 in revenue bonds
and notes issued by various State agencies, authorities and institutions of
higher education.
In the 1995 Legislative Session, the General Assembly authorized the
issuance of $530,500,000 in aggregate principal amount of general obligation
bonds for fiscal year 1996, the proceeds of which are to be used for various
planned capital projects of the State, its departments and agencies.
The Georgia Constitution also permits the State to incur public debt to
supply a temporary deficit in the State Treasury in any fiscal year created by a
delay in collecting the taxes of that year. Such debt must not exceed, in the
aggregate, 5% of the total revenue receipts, less refunds, of the State Treasury
in the fiscal year immediately preceding the year in which such debt is
incurred. The debt incurred must be repaid on or before the last day of the
fiscal year in which it is to be incurred out of the taxes levied for that
fiscal year. No such debt may be incurred in any fiscal year if there is then
outstanding unpaid debt from any previous fiscal year which was incurred to
supply a temporary deficit in the State Treasury. No such debt has been incurred
under this provision since its inception.
Virtually all of the issues of long-term debt obligations issued by or on
behalf of the State of Georgia and counties, municipalities and other political
subdivisions and public authorities thereof are required by law to be validated
and confirmed in a judicial proceeding prior to issuance. The legal effect of a
validation in Georgia is to tender incontestable the validity of the pertinent
bond issue and the security therefor.
Tax collections of the State for fiscal year 1994 were 7.8% over tax
collections for fiscal year 1993. Corporate and individual income tax receipts
and general sales tax receipts of the State for fiscal year 1994 comprised an
estimated 49.0% and 40.2%, respectively, of the total State tax revenues.
Revenues from sales and income taxes increased 9.2% and 6.7%, respectively,
during fiscal year 1994, and 8.3% and 9.1%, respectively, during fiscal year
1995.
On December 6, 1994, the United States Supreme Court reversed the Georgia
Supreme Court's decision in Reich v. Collins which had determined that the
plaintiff federal retiree was not entitled to a refund of taxes paid on federal
retirement pension benefits for tax years before 1989. The plaintiff had sought
refunds under the United States Supreme Court's decision in Davis v. Michigan
Department of Treasury. On February 1, 1995, the Governor signed H.B. 90 into
law, which provides for the payment of refunds to federal retirees who timely
filed claims for any of the tax years 1985 through 1988, inclusive. The total
amount payable is estimated at approximately $110 million, to be paid in four
roughly equal annual installments beginning on or before October 15, 1995. Based
on this legislation, Reich has been dismissed.
Three suits have been filed against the State of Georgia seeking refunds
of liquor taxes in light of Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)
under Georgia's pre-Bacchus statute. In James B. Beam Distilling Co. v. State,
501 U.S. 529 (1991), the Supreme Court indicated that Bacchus was retroactive,
but only within the bounds of State statutes of limitations and procedural
bars, and left State courts to determine any remedy in light of reliance
interests, equitable considerations, and other defenses. Georgia's statute of
limitations has run on all pre-Bacchus claims for refund except five pending
claims seeking $31.7 million in tax plus interest. On remand, the Fulton
County Superior Court ruled that procedural bars and other defenses bar any
recovery by taxpayers on Beam's claims for refund. The Georgia Supreme Court
affirmed, and Beam's petition to the United States Supreme Court for a writ of
certiorari was denied. Thus, the Beam case is now concluded. The State has
filed a motion for summary judgment, based upon Beam, in the remaining two
suits for refund, i.e., Joseph E. Seagram & Sons, Inc. v. State and Heublein,
Inc. v. State, in DeKalb County Superior Court.
Three suits (two for refund and one for declaratory and injunctive relief)
have been filed with the State of Georgia by foreign producers of alcoholic
beverages. The first suit seeks $96 million in refunds of alcohol import taxes
imposed under Georgia's post-Bacchus statute. These claims constitute 99% of all
such taxes paid during the three years preceding these claims. In addition, the
claimants have filed a second suit for refund of an additional $23 million for
apparently later time periods. These two cases encompass all known or
anticipated claims for refund of such type within the apparent statute of
limitations. The two refund cases are still pending in the trial court. The
declaration/injunctive relief case was dismissed by the District Court and was
affirmed by the Eleventh Circuit Court of Appeals. The claimants have filed a
petition for rehearing which is pending.
A suit has also been filed based on a local school board's claim that the
State finance the major portion of the costs of its desegregation program. The
Savannah Board originally requested restitution in the amount of $30 million,
but the Federal District Court set forth a formula which would require a State
payment in the amount of approximately $8,900,000. The plaintiffs, dissatisfied
with the apportionment of desegregation costs between State and county, and an
adverse ruling on the State funding formula for transportation costs, have
appealed to the Eleventh Circuit Court of Appeals. The State has filed a
responsive cross-appeal on the ground that there is no basis for any liability.
Subsequently, the parties agreed to a settlement, which has been submitted to
the Court for approval. The proposed settlement calls for the State to pay the
amount awarded to the plaintiffs and to offer an option regarding future funding
methodology for pupil transportation. Because interest was accruing in the
settlement, in March 1995, the State paid to the plaintiffs $8,925,000 in
partial satisfaction of the settlement agreement.
A similar complaint has been filed by DeKalb County and seeking
approximately $67,500,000 in restitution. The federal District Court ruled that
the State's funding formula for pupil transportation (which the District Court
in the Savannah case upheld) was contrary to State law. This ruling would
require a State payment of a State law funding entitlement in the amount of
approximately $34,000,000 computed through June 30, 1994. Motions to reconsider
and amend the Court's judgment were filed by both parties. The State's motion
was granted, in part, which reduced the required State payment to approximately
$28,000,000. Notices of appeal to the Eleventh Circuit Court of Appeals have
been filed. There are approximately five other school districts which might file
similar claims.
Another suit has been filed in federal district and State superior courts
challenging the constitutionality of Georgia's transfer fee (often referred to
as "impact fee") by asserting that the fee violates the commerce clause, due
process, equal protection and privilege and immunities provisions of the
constitution. The plaintiff seeks to prohibit the State from further collections
and to require the State to return to her and those similarly situated all fees
previously collected. A similar lawsuit previously filed in another State
superior court has been voluntarily dismissed and will likely be joined with
this action. From May of 1992 to June 1995, the State has collected $24,168,203.
All amounts collected after June 7, 1995 are being paid into an escrow account.
The State continues to collect approximately $500,000 to $600,000 per month.
On September 1, 1994, a civil action was filed in the Fulton County Superior
Court on behalf of all certain employees of the State of Georgia who were
subjected to a freeze in pay between 1992 and 1995. The State believes that it
has good and adequate defenses to the claims made, but, should the plaintiffs
prevail in every aspect of their claims, the liability of the State in this
matter could be as much as $295,000,000, based on best estimates currently
available.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $122,948,667. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$521,159 (equivalent to 0.41% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $496,637 (equivalent to 0.40% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $228,627 (equivalent to 0.37%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $16,832, $11,268,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended August 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $18,865 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $19,022. Such payments reduced Uncovered Distribution
Charges. During such period, contingent deferred sales charges aggregating
approximately $46 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $398,720 (which
amount was equivalent to 16.0% of the Fund's net assets on such date). During
the fiscal year ended August 31, 1995, the Fund paid service fee payments under
the Plan aggregating $5,148, of which $4,994 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $145.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $1,507. For
fiscal year ended August 31, 1995, the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ----------- ------------------
Donald R. Dwight .......... $0 $1,563(2) $135,000(4)
Samuel L. Hayes, III ...... 0 1,608(3) 150,000(5)
Norton H. Reamer .......... 0 1,631 135,000
John L. Thorndike ......... 0 1,718 140,000
Jack L. Treynor ........... 0 1,647 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
David C. Reilly (38) is a Vice President of the Portfolio. Mr. Reilly has served
as a Vice President of the Portfolio since June 19, 1995. Mr. Reilly has been a
Vice President of BMR since 1992 and Eaton Vance since 1991, and is an officer
of various investment companies managed by Eaton Vance or BMR. Prior to joining
Eaton Vance, Mr. Reilly was a Vice President and a municipal bond analyst at
Scudder, Stevens & Clark (1984-1991).
PERFORMANCE 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 23, 1991 through August 31, 1995. The total return for the
period prior to the Fund's commencement of operations on December 7, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund 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.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 12/23/91 $1,000 $1,190.05 $1,190.05 19.01% 4.83% 19.01% 4.83%
1 Year
Ended
8/31/95<F2> 8/31/94 $1,000 $1,046.01 $1,036.04 4.60% 4.60% 3.60% 3.60%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and any appreciation in value
or 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 Fund's current Prospectus.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.77%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.77% would be 7.35%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.57%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.67%. 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 Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 30.4%
Aa or AA 34.1
A 24.9
Baa or BBB 6.6
Ba or BB 0.4
B --
Below B --
Not rated 3.6
-----
Total 100.0%
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 4.5% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used are the federal and
Georgia income tax brackets applicable for 1995: 20.10% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 32.32% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250; 35.14% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 39.84% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 43.22% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. Tax
brackets are calculated using the highest state rate within each bracket. These
brackets assume that Georgia taxes are deducted on the federal income tax
return, and do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income, which increase the effective top federal tax rate for certain taxpayers.
The combined brackets are not simply the sum of each of the taxes, as they
assume that State taxes are deducted on the federal income tax return, reducing
the effective combined tax brackets. Investors should consult with their tax
advisers for more information. This illustration is not meant to imply or
predict any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.10% 32.32% 35.14% 39.84% 43.22%
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent ............. 5.63 6.65 6.94 7.48 7.93
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.60 2.20 2.11 1.96 1.85
</TABLE>
Classic Georgia
The Tax Free Yield Advantage
(39.84% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
4.50% Tax free investment
7.48% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments
3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,294.80) NONE
After-tax
income: $1,955.20 $4,500.00
The 1995 combined tax bracket takes into account federal and Georgia State
income taxes. Assuming the deductibility of state taxes on the federal return,
the bracket is 39.84% 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 represent actual
results of an investment in the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 15, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 61.57% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person beneficially owns more than 5% of
the Fund's outstanding shares.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Georgia Tax Free Fund to EV Classic Georgia Municipals Fund
on January 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income tax
and Georgia State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND GEORGIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- GA 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 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Georgia personal income tax after
deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Georgia tax rate
within the bracket. Taxpayers with taxable income within this bracket may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax rates assume that Georgia taxes are Itemized
Deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal Income Tax Return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above.
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 Georgia 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 Georgia Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Georgia 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 Georgia personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC KENTUCKY MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Kentucky state personal income taxes in the form
of an investment exempt from the Kentucky intangibles tax. The Fund currently
seeks to achieve its investment objective by investing its assets in the
Kentucky Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Kentucky considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Kentucky issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Kentucky issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Because the Kentucky Constitution requires the vote of a majority of the
state's electorate to approve the issuance of state general obligation
indebtedness and requires the vote of two-thirds of a municipality's electorate
to approve the issuance of general obligation indebtedness by any city, county,
or other municipality within the state, most Kentucky state and local government
indebtedness is issued not as general obligation indebtedness but as either debt
payable only from revenues produced by the particular project or as indebtedness
subject to biennial, in the case of the state, or annual, in the case of a local
government, legislative appropriation for the payment of debt service. Such
appropriation-backed indebtedness is customarily issued in the form of lease
revenue bonds by a public authority or public holding company which uses the
proceeds of the bonds to finance the particular public project and leases the
project to the state or local government pursuant to a lease renewable each
fiscal biennium (in the case of the state) or each fiscal year (in the case of a
local government). Failure of the lessee government to renew the lease would
terminate the lessee's obligation to make further rental payments and would
leave the bondholders with recourse only against the property which was subject
to the lease and any other security pledged for the payment of the bonds. An
amendment to the state constitution approved by the electorate at the November
1994 general election authorizes the Kentucky General Assembly to enact
legislation permitting local governments to issue general obligation
indebtedness without voter approval but subject to prescribed limitations on the
maximum amount of indebtedness that may be incurred based on the assessed value
of the taxable property within the municipality and such additional limitations
and conditions as may be prescribed by statute.
The Kentucky General Assembly has not yet enacted any such enabling
legislation and, therefore, appropriation-backed indebtedness continues to be
the prevailing form of financing for local governments in Kentucky.
The Commonwealth of Kentucky recently retired the last of its outstanding
general obligation debt. In September 1994 S&P upgraded the rating of the
State's appropriation-back debt from A to A+. Moody's and Fitch rate the State's
appropriation-back debt as A and A+, respectively.
Kentucky is an "average" state in terms of size and in terms of its
proportion of the national economy. Kentucky has 1.5% of total U.S. population,
1.2% of total U.S. personal income, and 1.3% of total U.S. nonagricultural
employment. However, during the latter part of the 1980's and throughout the
1990's, Kentucky's economy has outperformed the national average. During 1994
the unemployment rate in Kentucky averaged 5.4% as compared to the national
average of 6.1%; nonagricultural employment in Kentucky grew 3.3% as compared to
a national growth rate of 2.6%; and personal income in Kentucky grew 6.0%
compared to a national growth rate of 5.3%.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last three years. State General Fund revenue grew by 10.9% in fiscal
year 1995 to a total of $5.15 billion. To avoid the need for state budget cuts
in the event revenues do not meet expectations, a Budget Reserve Trust Fund was
established with a $90 million deposit in fiscal year 1994. An additional $10
million was deposited into the Budget Reserve Trust Fund on in fiscal year 1995,
bringing the balance to the targeted level of $100 million.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $145,268,626. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$595,483 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $510,287 (equivalent to 0.41% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $224,010 (equivalent to 0.37%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the fiscal year ended
August 31, 1995 and for the period from the start of business, December 7, 1993,
to the fiscal year ended August 31, 1994, $27,092, $9,744, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended August 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $14,848 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $15,262. Such payments reduced Uncovered Distribution
Charges. During such period, contingent deferred sales charges aggregating
approximately $840 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $300,783 (which
amount was equivalent to 16.5% of the Fund's net assets on such date). During
the fiscal year ended August 31, 1995, the Fund paid service fee payments under
the Plan aggregating $4,061, of which $3,929 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $157.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $4,262. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $35,132.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ----------- ------------------
Donald R. Dwight .......... $ $1,563(2) $135,000(4)
Samuel L. Hayes, III ...... 1,608(3) 150,000(5)
Norton H. Reamer .......... 1,631 135,000
John L. Thorndike ......... 1,718 140,000
Jack L. Treynor ........... 1,647 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Timothy T. Browse (36) has served as a Vice President of the Portfolio since
June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton Vance since
1993 and an employee of Eaton Vance since 1992. Mr. Browse is an officer of
various investment companies managed by Eaton Vance or BMR. Prior to joining
Eaton Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from December 23, 1991 through August 31, 1995. The total return for the
period prior to the Fund's commencement of operations on December 7, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund 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.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 12/23/91 $1,000 $1,213.74 $1,213.74 21.37% 5.39% 21.37% 5.39%
1 Year
Ended
8/31/95<F2> 8/31/94 $1,000 $1,062.94 $1,052.94 6.29% 6.29% 5.29% 5.29%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and any appreciation in value
or 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 Fund's current Prospectus.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.45%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.45% would be 6.86%, assuming a
combined Federal and State tax rate of 35.14%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.61%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.71%. 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 Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 37.3%
Aa or AA 13.6
A 31.2
Baa or BBB 13.4
Ba or BB 3.3
B --
Below B --
Not rated 1.2
-----
Total 100.0%
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 5.0% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used are the combined
tax brackets applicable to a Kentucky resident subject to Federal and Kentucky
state income taxes and Kentucky intangibles taxes on mutual fund shares yielding
5.0%. These combined tax brackets, which are based on 1995 tax rates, are 24.35%
for single filers with taxable income up to $23,350 and joint filers up to
$39,000; 35.92% for single filers with taxable income from $23,351 to $56,550
and joint filers from $39,001 to $94,250; 38.59% 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 $265,500 and joint
filers from $143,601 to $256,500; and 46.24% for single and joint filers with
taxable income over $256,500. The applicable Federal tax rates within each of
these combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges
of income. The Kentucky State income tax rate is 6%, and the intangibles tax as
a percentage of income is 5.0%. The combined brackets are not simply the sum of
each of the three taxes, as they assume that state taxes are deducted on the
Federal income tax return, reducing the effective combined tax brackets. The
combined tax brackets used in calculating the after-tax certificate of deposit
yields are 20.12%, 32.33%, 35.15%, 39.85% and 43.23% over the same ranges of
income. These brackets reflect the .001% intangibles tax rate applicable to
certificates of deposit. Investors should consult with their tax advisers for
additional information.
<TABLE>
<CAPTION>
TAX BRACKET
24.35% 35.92% 38.59% 43.04% 46.09%
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ....................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................... 6.61 7.80 8.14 8.78 9.30
TAX BRACKET
20.10% 32.32% 35.14% 39.84% 43.22%
-----------------------------------------------------------------------
Certificates of deposit:
Yield ............................................ 3.25 3.25 3.25 3.25 3.25
After-tax yield .................................. 2.60 2.20 2.11 1.95 1.85
</TABLE>
Classic Kentucky
The Tax Free Yield Advantage
(43.04% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.95% After-tax yield
5.00% Tax free investment
8.78% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,295.12) NONE
After-tax
income: $1,954.88 $5,000.00
The 1995 combined tax bracket takes into account Federal and Kentucky State
income taxes as well as the Kentucky intangibles tax. 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 (Sources: The Wall Street
Journal and Eaton Vance Management). Individuals pay a lesser Kentucky
intangibles tax on bank CDs. Accordingly, the combined tax bracket applicable to
the after-tax CD yield is 39.84%. Tax free yields are shown for illustration
purposes only and are not meant to represent actual results of an investment in
the Fund. See your financial adviser for the Fund's current yield and actual CD
rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As at October
15, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 54.5% of the outstanding
shares, which were held on behalf of its customers who are the beneficial owners
of such shares, and as to which it had voting power under certain limited
circumstances. In addition as of October 15, 1995, Samuel R. Rechter and Bonnie
J. Rechter, JTWROS, Louisville, KY, owned beneficially and of record 5.18 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.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Kentucky Tax Free Fund to EV Classic Kentucky Municipals
Fund on January 1, 1996.
TAX EQUIVALENT YIELD TABLE
The tables below show the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Kentucky State income tax laws, and intangibles tax laws and tax rates
applicable for 1995. It gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND KENTUCKY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------- ------------ KY STATE -----------------------------------------------
(TAXABLE INCOME*) 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 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
4% 4.5% 5% 5.5% 6% 6.5% 7%
SINGLE RETURN JOINT RETURN -----------------------------------------------
- ---------------- ------------ TAXABLE EQUIVALENT YIELD REFLECTING EXEMPTION
(TAXABLE INCOME)<F1> FROM INTANGIBLES TAX<F3>
- ---------------------------------------- -----------------------------------------------
Up to $ 23,350 Up to $ 39,000 5.36% 5.99% 6.61% 7.23% 7.86% 8.48% 9.11%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 6.33 7.07 7.80 8.54 9.28 10.01 10.75
$ 56,551 - $117,950 $ 94,251 - $143,600 6.61 7.37 8.14 8.91 9.68 10.45 11.22
$117,951 - $256,500 $143,601 - $256,500 7.12 7.95 8.78 9.61 10.44 11.27 12.10
Over $256,500 Over $256,500 7.55 8.42 9.30 10.18 11.06 11.94 12.82
<FN>
<F1> Net amount subject to Federal and Kentucky personal income tax after
deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Kentucky tax rate
within the bracket. Taxpayers with taxable income within this bracket may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax rates assume that Kentucky taxes are Itemized
Deductions for Federal income tax purposes. Investors who do not itemize
deductions on their Federal Income Tax Return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above.
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield.
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 Kentucky 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.
<F3> The Kentucky intangibles tax on stocks, bonds, notes and other evidences of
debt is 25 cents on every $100 of the value thereof. An example of the
effect of the Kentucky intangibles tax on the combined tax brackets of
taxpayers is as follows: A $10,000 investment subject to the tax would
require payment of $25 annually in intangibles taxes. If the investment
yielded 5.5% annually or $550, the intangibles tax as a percentage of
income would be $25/$550 or 4.55%. If a taxpayer owning such an investment
were in the 6% state income tax bracket, he or she would be paying combined
state taxes as a percentage of income of 6% plus 4.55% or 10.55%. Assuming
the deductibility of these taxes as Itemized Deductions and that such
taxpayer were in the 36% Federal income tax bracket, the taxpayer would
then be in a 42.75% [36% + (1 - .36) X 10.55%] combined tax bracket with
respect to such investment. This is higher than the 39.84% combined tax
bracket without taking into account the intangibles tax.
</TABLE>
Of course, no assurance can be given that EV Classic Kentucky Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and Kentucky 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 Kentucky personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular Federal income tax, is treated as
a tax preference item which could subject the recipient to the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC LOUISIANA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Louisiana State individual and corporate
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Louisiana Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Louisiana considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Louisiana issuers. Such information supplements the information in the
Prospectus, it is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Louisiana issuers. Neither the Trust nor the Portfolio has independently
verified this information.
In 1991, the Louisiana Legislature enacted the Louisiana Riverboat Economic
Development and Gaming Control Act ("Act 753") to assist the growth of tourism
by the development of a riverboat industry in the State authorized to operate
regulated gaming activities. Act 753 designates certain rivers and waterways in
the State upon which riverboat gaming may be conducted and provides for the
creation of a gaming commission known as the Riverboat Gaming Commission (the
"Riverboat Commission"), and for the creation of the Riverboat Gaming
Enforcement Division (the "Enforcement Division"). The Enforcement Division is
responsible for investigation of license and permit applications. The Riverboat
Commission has the responsibility of licensing, regulating and inspecting
riverboat gaming facilities and enforcing Act 753 and regulations promulgated
thereunder. Act 753 allows the issuance of up to fifteen licenses to conduct
gaming activities on riverboats of new construction (built after January 1,
1992); provided that, no more than six licenses may be granted for the operation
of riverboat gaming in any one parish. As of November 1994 there were 9
riverboats in operation in Louisiana, including two riverboats in Orleans
Parish, two riverboats in other parts of the New Orleans metropolitan area, one
in Baton Rouge, one in Lake Charles, and three in Shreveport/Bossier City. An
additional six riverboats are planned, including three expected to be located in
Orleans Parish and two expected to be located in other parts of the New Orleans
metropolitan area. Act 753 imposes annual license fees for gaming employee,
manufacture, supplies and other permits. In addition, there is a license fee
equal to 3.5% of net gaming proceeds and a franchise fee equal to 15% of net
gaming proceeds. Of the 3.5% fee, up to 0.5% can be used to meet the expenses of
the Riverboat Gaming Commission; the remainder of the 3.5% shall be used by the
Enforcement Division to meet its regular, administrative, investigative and
enforcement expenses. The 15% franchise fees are to be deposited to the credit
of the State General Fund. The official forecast for riverboat gaming revenues
is $30 million for fiscal year 1993-94 and $50 million for fiscal year 1994-95.
For fiscal 1996, the State failed to receive a Section 1115 waiver from the
U.S. Department of Health and Human Services resulting in a significant
reduction of federal funding for its health care programs. As a result, the
State faces a large operating gap for its fiscal 1996 budget. At this time, it
is uncertain as to how the State plans to close the fiscal gap and how it will
affect the creditworthiness of State obligations and related debt.
In 1991, the Louisiana Legislature enacted the Video Draw Poker Devices
Control Law (the "Act 1062") for the purpose of regulating and licensing the use
and operation of video draw poker devices through the video gaming division (the
"Video Division") of the gaming enforcement section of the office of the State
police. Act 1062 imposes annual license fees and a franchise payment equal to
22.5% of the net device revenue derived from the operation of each device. The
forecast of Video Draw Poker gaming revenue is $100 million for fiscal year
1994-1995.
In 1992, Act 384 of the Louisiana Legislature created the Louisiana Economic
Development and Gaming Corporation (the "LEDGC") for the purpose of contracting
with a casino operator to provide for or furnish an official gaming
establishment and to conduct casino gaming operations at the official gaming
establishment (the "Permanent Casino"). Act 384 directs that the Permanent
Casino be located on the site of the Rivergate Convention Center in New Orleans.
The LEDGC has entered into a contract ("Contract") with Harrah's Jazz Company
("Company"), a general partnership owned equally by Harrah's New Orleans
Investment Company, New Orleans/Louisiana Development Corporation and Grand
Palais Casino Inc. Pursuant to the Contract, the Company will be allowed to
operate a Temporary Casino until the opening of the Permanent Casino. Pursuant
to the Contract, the Company will be required to pay an amount equal to 25% of
its gross gaming revenue to the LEDGC during operation of the Temporary Casino.
Upon the opening of the Permanent Casino, the Company will be required to make a
payment to the LEDGC in an amount equal to the greater of $100 million and an
amount that is between 19% and 25% of the gross gaming revenues of the Company.
Each quarter, the LEDGC must transfer to the State Treasury for deposit in the
Casino Gaming Proceeds Fund net revenues which are surplus to its needs. Such
revenues will be first credited to the Bond Security and Redemption Fund before
being credited to the Casino Gaming Proceeds Fund. Monies in the Casino Gaming
Proceeds Fund may be allocated or expended only pursuant to legislative
appropriation. The Temporary Casino is currently expected to open by the end of
the first quarter of 1995, and the Permanent Casino is currently expected to
open by the end of the first quarter of 1996.
FEES AND EXPENSES
INVESTMENT ADVISER
As at August 31, 1995, the Portfolio had net assets of $34,308,679. For the
fiscal year ended August 31, 1995, the Portfolio would have paid BMR advisory
fees of $73,471 (equivalent to 0.23% of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its fee in the amount of $36,188. For the period from the
Portfolio's start of business, February 1, 1994, to the fiscal year ended August
31, 1994, absent a fee reduction, the Portfolio would have paid BMR advisory
fees of $34,790 (equivalent to 0.21% (annualized) of the Portfolio's average
daily net assets for such period). To enhance the net income of the Portfolio,
BMR made a reduction of its fee in the amount of $31,760. The Portfolio's
Investment Advisory Agreement with BMR is dated February 1, 1994 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995, $10,912 of the Fund's operating expenses were
allocated to the Administrator. For the period from the start of business,
February 14, 1994, to the fiscal year ended August 31, 1994, $12,236 of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. During the fiscal year ended August 31, 1995, the
Principal Underwriter paid to Authorized Firms sales commissions of $19,393 on
sales of Fund shares. During the same period, the Fund paid sales commission
payments under the Plan to the Principal Underwriter aggregating $19,870. Such
payments reduced Uncovered Distribution Charges. During such period contingent
deferred sales charges aggregating aproximately $284 were imposed on early
redeeming shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at August 31, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $252,000 (which amount was equivalent to 10.6% of the
Fund's net assets on such day). During the fiscal year ended August 31, 1995,
the Fund paid service fee payments under the Plan aggregating $5,262, of which
$5,171 was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $82.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $1,675. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $975.
BROKERAGE
For the fiscal year ended August 31, 1995 and for the period from the start
of business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995 earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ----------- ------------------
Donald R. Dwight ........... $0 $333(2) $135,000(4)
Samuel L. Hayes, III ....... 0 322(3) 150,000(5)
Norton H. Reamer ........... 0 314 135,000
John L. Thorndike .......... 0 318 140,000
Jack L. Treynor 0 343 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $83 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Nicole Anderes (34) is a Vice President of the Portfolio. Ms. Anderes has served
as a Vice President of the Portfolio since June 19, 1995. Ms. Anderes has been a
Vice President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres Asset
Management (1992-1994) and Vice President and Manager -- Municipal Research,
Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from October 2, 1992 through August 31, 1995. The total return for the
period prior to the Fund's commencement of operations on February 14, 1994
reflects 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>
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 10/2/92 $1,000 $1,213.00 $1,213.00 21.30% 6.84% 21.30% 6.84%
1 Year
Ended
8/31/95<F2> 8/31/94 $1,000 $1,048.78 $1,038.81 4.88% 4.88% 3.88% 3.88%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of distributions or 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 Fund's current Prospectus.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.74%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.74% would be 7.31%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Portfolio's
and the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.87%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.98%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 73.4%
Aa or AA 3.1
A 14.7
Baa or BBB 6.1
Ba or BB --
B --
Below B --
Not rated 2.7
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 4.5% with the after-tax yield of a certificate of
deposit yielding a hypothetical 3.25%. The tax brackets used are the combined
federal and Louisiana tax brackets applicable for 1995: 18.40% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 32.32% for
single filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 35.14% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 39.84% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 43.22% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6% over the same ranges of income. The
combined brackets are not simply the sum of each of the taxes, as they assume
that State taxes are deducted on the federal income tax return, reducing the
effective combined tax brackets. The brackets are also based on the highest
Louisiana tax rate or average of the highest single and joint tax rates within
each bracket. As a result, some taxpayers may have lower tax brackets within
these ranges of income. These tax brackets do not take into account the phaseout
of personal exemptions and limitation on deductibility of itemized deductions
over certain ranges of income. Investors who do not itemize or who are subject
to such phaseout or limitation will have a higher combined tax bracket than
indicated above. Investors should consult with their tax adviser for additional
information. These illustrations are not meant to imply any future rate of
return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
18.40% 32.32% 35.14% 39.84% 43.22%
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield .............................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent .......................... 5.51 6.65 6.94 7.48 7.93
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.65 2.20 2.11 1.96 1.85
</TABLE>
Classic Louisiana
The Tax Free Yield Advantage
(39.84% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
4.50% Tax free investment
7.48% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,294.80) NONE
After-tax
income: $1,955.20 $4,500.00
The 1995 combined tax bracket takes into account federal and Louisiana State
income taxes. Based on an investment yielding 4.5%, and assuming the
deductibility of state taxes on the federal return, the bracket is 39.84% 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. The
chart is based on 3-month bank CDs (Sources: The Wall Street Journal and Eaton
Vance Management). Tax free yields are shown for illustration purposes only and
are not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 44.2% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of the same date, the following shareholders owned of record the
percentages of outstanding shares indicated after their names: Rozelle Hahn MD,
Benton, LA 71006-4230 (7.3%). PaineWebber for the benefit of Brigette and
Charles Belair tennants in common, Belle Chasse, LA 70037-2630 (5.7%); and
PaineWebber for the benefit of William E. Wynne, New Orleans, LA 70124-2643
(5.2%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Louisiana Tax Free Fund to EV Classic Louisiana Municipals
Fund on January 1, 1996.
<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
and Louisiana State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND LOUISIANA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ------------------- LA STATE -----------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------ ---------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.32 5.91% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
Over - $256,500 Over - $256,500 43.22 7.05% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
<FN>
<F1> Net amount subject to federal and Louisiana personal income tax after
deductions and exemptions.
<F2> Tax brackets are calculated using the highest Louisiana tax rate within the
brackets. Taxpayers with taxable income within these brackets may have a
lower combined bracket and taxable equivalent yield than indicated above.
The combined tax rates assume that Louisiana taxes are itemized deductions
for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and
higher taxable equivalent yield than those indicated above. 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 Louisiana 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 Louisiana Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Louisiana 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 Louisiana personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC MARYLAND MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Maryland State and local income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Maryland Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Maryland considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Maryland issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Maryland issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Generally Maryland has been among the most heavily indebted of the states,
although its position is more moderate with the inclusion of local debt,
reflecting in part the State assumption several years ago of a substantial
portion of local school construction costs. The State became concerned over its
debt levels and, following recommendations of a debt affordability committee,
has practiced restraint in borrowing. Resources have also expanded and debt
ratios have fallen. Capital borrowing plans are reasonable and designed not to
increase debt levels. Recently, major infrastructure projects undertaken,
including a light rail line, a stadium, and airport and convention center
improvements, have been financed primarily by revenue-backed or other
non-general obligation financings.
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State, as well as the various counties and
municipalities of the State, issues general obligation bonds payable from ad
valorem taxes for capital improvements. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities, as well as several local
governments, issue obligations payable solely from identified taxes or revenue
streams, including loan obligations from nonprofits, companies or other private
entities, and for which the State or local government has no liability and has
given no moral obligation assurance. The State, its agencies and departments and
the various localities also enter into municipal leases or installment purchase
obligations. Such a lease is not a general obligation of the municipality for
which the municipality's taxing power is pledged but is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments due
under the lease. Such municipal leases generally contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis.
During fiscal year 1991 through 1993, the State experienced budgetary
problems caused by a national recession. To address revenue shortfalls and
expanded expenditure requirements the State increased tax and other revenues,
curtailed various programs and transferred funds from various reserve accounts.
The State ended its fiscal year 1994 with a General Fund surplus on a budgetary
basis of approximately $60.0 million, and ended its fiscal year 1995 with a
General Fund surplus on a budgetary basis of approximately $26.5 million
(excluding $106 million to be applied to the fiscal year 1996 budget) and $286.1
million in the Revenue Stabilization Account of the State Reserve Fund. When the
fiscal year 1996 budget was enacted, it was anticipated that the year-end
General Fund surplus on a budgetary basis would be approximately $7.8 million
and that there would be $370.9 million in the State's Revenue Stabilization
Account. The State currently projects the year-end General Fund surplus on a
budgetary basis to be approximately $34.3 million and the balance in the Revenue
Stabilization Account to be approximately $51.8 million. Fiscal year 1995
revenues for the General Fund were $7.09 billion; fiscal 1996 revenues for the
General Fund are anticipated to be $7.43 billion.
FEES AND EXPENSES
INVESTMENT ADVISER
As at August 31, 1995, the Portfolio had net assets of $115,004,176. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$459,907 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $390,773 (equivalent to 0.39% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, absent a fee reduction, the Portfolio would have paid BMR, advisory fees
of $153,778 (equivalent to 0.34% (annualized) of the Portfolio's average daily
net assets for such period). To enhance the net income of the Portfolio, BMR
made a reduction of its advisory fee in the amount of $11,256. The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of the
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 10, 1993, to the fiscal year ended August 31, 1994, $19,261 and
$18,532, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended August 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $6,688 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $7,199. Such payments reduced Uncovered Distribution
Charges. During such period, contingent deferred sales charges aggregating
approximately $32 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $93,000 (which
amount was equivalent to 9.9% of the Fund's net assets on such date). During the
fiscal year ended August 31, 1995, the Fund paid service fee payments under the
Plan aggregating $1,934, of which $1,756 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $27.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $4,183. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $16,357.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ----------- ------------------
Donald R. Dwight .......... $0 $1,563(2) $135,000(4)
Samuel L. Hayes, III ...... 0 1,608(3) 150,000(5)
Noton H. Reamer ........... 0 1,630 135,000
John L. Thorndike ......... 0 1,718 140,000
Jack L. Treynor ........... 0 1,647 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Timothy T. Browse (36) has served as a Vice President of the Portfolio since
June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton Vance since
1993 and an employee of Eaton Vance since 1992. Mr. Browse is an officer of
various investment companies managed by Eaton Vance or BMR. Prior to joining
Eaton Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from February 3, 1992 through August 31, 1995 and for the one year period
ended August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 10, 1993 reflects 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.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 2/3/92 $1,000 $1,240.70 $1,240.70 24.07% 6.21% 24.07% 6.21%
1 Year
Ended
8/31/94<F2> 8/31/94 $1,000 $1,069.09 $1,059.09 6.91% 6.91% 5.91% 5.91%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of distributions, or 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 Fund's current Prospectus.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.49%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.49% would be 7.07%, assuming a
combined federal and State tax rate of 36.52%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.53%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.63%. 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 Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT OF
MOODY'S, S&P OR FITCH BOND HOLDINGS
-------------- -----------
Aaa or AAA 35.7%
Aa or AA 18.4
A 31.0
Baa or BBB 11.6
Ba or BB --
B --
Below B --
Not rated 3.3
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 4.5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Maryland State and local income tax brackets applicable for 1995: 21.80% for
single filers with taxable income up to $23,350 and joint filers up to $39,000;
33.76% for single filers with taxable income from $23,351 to $56,550 and joint
filers from $39,001 to $94,250; 36.52% for single filers with taxable income
from $56,551 to $117,950 and joint filers from $94,251 to $143,600; 41.12% for
single filers with taxable income from $117,951 to $256,500 and joint filers
from $143,601 to $256,500; and 44.43% for single and joint filers with taxable
income over $256,500. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of
income. These brackets assume that Maryland taxes are deducted on the federal
income tax return, reducing the effective combined tax brackets. These brackets
do not take into account the phaseout of personal exemptions and limitation on
deductibility of itemized deductions over certain ranges of income. Investors
who do not itemize or who are subject to such phaseout or limitation will have a
higher combined bracket than indicated above. The combined tax brackets also
assume the maximum local income tax rate equal to 60% of the State tax rate
applies and the highest Maryland State income tax rate applicable at the upper
portion of the brackets. Accordingly, some taxpayers may have lower combined tax
brackets than indicated above. Investors should consult with their tax adviser
for additional information. These illustrations are not meant to imply any
future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
21.80% 33.76% 36.52% 41.12% 44.43%
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent ............. 5.75 6.79 7.09 7.64 8.10
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.54 2.15 2.06 1.91 1.81
</TABLE>
Classic Maryland
The Tax Free Yield Advantage
(41.12% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.91% After-tax yield
4.50% Tax free investment
7.64% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments
3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,336.40) NONE
After-tax
income: $1,913.60 $4,500.00
The 1995 combined bracket takes into account federal and Maryland State and
local income taxes. Assuming the deductibility of State and local taxes on the
federal return, the bracket is 41.12% 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 represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
TAXES
The Fund will not be subject to Maryland corporate income tax, provided
that, if there exists sufficient nexus between the State of Maryland and the
Fund to enable Maryland to tax the Fund, then the Fund will not be subject to
the corporate income tax for a taxable year if the Fund distributes to
shareholders all of its net investment income for such year.
The Fund will not be subject to Maryland financial institution franchise
taxes.
Obligations held by the Fund will not be subject to Maryland personal
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, the following shareholders owned beneficially and
of record, the percentages of shares of the Fund indicated after their names:
Calvert R. Bregel, Glen Arm, MD (19.1%); Cecile B. Taubman, Baltimore, MD
(10.4%); and Paine Webber for the Benefit of William J. Shaw, Potomac, MD
(7.8%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Maryland Tax Free Fund to EV Classic Maryland Municipals
Fund on January 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income tax
and Maryland State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<PAGE>
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND MARYLAND STATE AND LOCAL
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MD STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------------------------- AND LOCAL ------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.80% 5.12% 5.75% 6.30% 7.03% 7.67% 8.31% 8.95%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57
$ 56,551 - $117,950 $ 94,251 - $143,600 36.52 6.30 7.09 7.88 8.66 9.45 10.24 11.03
$117,951 - $256,500 $143,601 - $256,500 41.12 6.79 7.64 8.49 9.34 10.19 11.04 11.89
Over $256,500 Over $256,500 44.43 7.20 8.10 9.00 9.90 10.80 11.70 12.60
<FN>
<F1> Net amount subject to federal and Maryland State and local personal income
taxes after deductions and exemptions.
<F2> Tax brackets are calculated using the highest Maryland State and local tax
rate within the brackets. Taxpayers with taxable income within these
brackets may have a lower combined bracket and taxable equivalent yield
than indicated above. The illustration assumes the taxpayer is subject to a
local income tax which is 60% of the State rate. The combined tax rates
assume that Maryland taxes are itemized deductions for federal income tax
purposes. Investors who do not itemize deductions on their federal income
tax return will have a higher combined bracket and higher taxable
equivalent yield than those indicated above. 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 Maryland State and local 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 Maryland Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Maryland State 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 Maryland State personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC MISSOURI MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Missouri State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Missouri Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Missouri considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Missouri issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Missouri issuers. Neither the Trust nor the Portfolio has independently verified
this information.
While Missouri has a diverse economy with a distribution of earnings and
employment among manufacturing, trade and service sectors closely approximating
the average national distribution, the national economic recession of the early
1980's had a disproportionately adverse impact on the economy of Missouri.
However, since the 1980 to 1983 recession periods, Missouri unemployment levels
generally approximated or slightly exceeded the national average. The St. Louis
and Kansas City metropolitan areas are important contributors to the Missouri
economy. Economic reversals in either of these two areas would have a major
impact on the overall economic condition of the State of Missouri. Additionally,
the State of Missouri has a significant agricultural sector which is
experiencing farm-related problems comparable to those which are occurring in
other states. To the extent that these problems were to intensify, there could
possibly be an adverse impact on the overall economic condition of the State.
Defense related business plays an important role in Missouri's economy. In
addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related businesses
in Missouri are the recipients of substantial annual dollar volumes of defense
contract awards. McDonnell Douglas Corporation, the State's largest employer,
received the second largest dollar amount of defense contracts in the United
States in 1994. There can be no assurances there will not be further changes in
the levels of military appropriations, and, to the extent that further changes
in military appropriations are enacted by the United States Congress, Missouri
could be disproportionately affected.
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty: litigation
continues on many issues, court orders are unpredictable, and school district
spending patterns have proven difficult to predict. A recent Supreme Court
decision favorable to the State may decrease the level of State funding required
in the future, but the impact of this decision is uncertain. The State paid $282
million for desegregation costs in fiscal 1994 and the budget for fiscal 1995
provided $315 million. This expense accounts for close to 17% of total state
General Revenue Fund spending.
Article X, Sections 16-24 of the Constitution of Missouri (the "Hancock
Amendment") imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well as
on the amount of local taxes, licenses and fees (including taxes, licenses and
fees used to meet debt service commitments on debt obligations) which may be
imposed by local governmental units (such as cities, counties, school districts,
fire protection districts and other similar bodies) in the State of Missouri in
any fiscal year.
The limit on taxes is tied to total State revenues determined in accordance
with the formula set forth in the amendment, which adjusts the limit based on
increases in the average personal income of Missouri for certain designated
periods. The details of the amendment are complex and clarification from
subsequent legislation and further judicial decisions may be necessary.
Generally, if the total State revenues exceed the State revenue limit imposed by
Section 18 of Article X by more than 1%, the State is required to refund the
excess. The State revenue limitation imposed by the Hancock Amendment does not
apply to taxes imposed for the payment of principal and interest on bonds,
approved by the voters and authorized by the Missouri Constitution. The revenue
limit can also be exceeded by a constitutional amendment authorizing new or
increased taxes or revenues adopted by the voters of the State of Missouri. The
Hancock Amendment also limits new taxes, licenses and fees and increases in
taxes, licenses and fees by local governmental units in Missouri. It prohibits
counties and other political subdivisions (essentially all local governmental
units) from levying new taxes, licenses and fees or increasing the current levy
of an existing tax, license or fee "without the approval of the required
majority of the qualified voters of that county or other political subdivision
voting thereon."
When a local governmental unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced "to yield the same estimated gross revenue as on the prior base." It
also effectively limits any percentage increase in property tax revenues to the
percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
FEES AND EXPENSES
INVESTMENT ADVISER
As at August 31, 1995, the Portfolio had net assets of $93,162,103. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$353,176 (equivalent to 0.38% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $296,556 (equivalent to 0.37% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $112,605 (equivalent to 0.30%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $20,693 and $11,502,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended August 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $23,964 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $24,737. Such payments reduced Uncovered Distribution
Charges. During such period, contingent deferred sales charges aggregating
approximately $105 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $341,000 (which
amount was equivalent to 10.8% of the Fund's net assets on such date). During
the fiscal year ended August 31, 1995, the Fund paid service fee payments under
the Plan aggregating $6,791, of which $6,347 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $122.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,937. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $35,917.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ----------- ------------------
Donald R. Dwight .......... $0 $1,164(2) 1,222(3)
Samuel L. Hayes, III ...... 0 1,222(3) 150,000(5)
Norton H. Reamer .......... 0 1,254 135,000
John L. Thorndike ......... 0 1,336 140,000
Jack L. Treynor ........... 0 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $294 of deferred compensation.
(3) Includes $393 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Cynthia J. Clemson (32) has served as a Vice President of the Portfolio since
June 19, 1995. Ms. Clemson has been a Vice President of BMR and Eaton Vance
since 1993 and an employee of Eaton Vance since 1985. Ms. Clemson is an officer
of various investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from May 1, 1992 through August 31, 1995 and for the one year period ended
August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 7, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 5/1/92 $1,000 $1,257.14 $1,257.14 25.71% 7.09% 25.71% 7.09%
1 Year
Ended
8/31/95<F2> 8/31/94 $1,000 $1,070.79 $1,060.79 7.08% 7.08% 6.08% 6.08%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of distributions, or 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 Fund's current Prospectus.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.26%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.26% would be 6.29%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.46%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.55%. 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 Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 52.3%
Aa or AA 18.0
A 20.5
Baa or BBB 7.6
Ba or BB --
B --
Below B --
Not rated 1.6
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Missouri State income tax brackets applicable for 1995: 20.10% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 32.32% for
single filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 35.14% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 39.84% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 43.22% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
assumed Missouri State income tax rate is 6%. The combined brackets are not
simply the sum of each of the taxes, as they assume that State taxes are
deducted on the federal income tax return, reducing the effective combined tax
brackets. These brackets do not take into account the phaseout of personal
exemptions and limitation on deductibility of itemized deductions over certain
ranges of income. Investors who do not itemize or who are subject to such
phaseout or limitation will have a higher combined tax bracket than indicated
above. Investors should consult with their tax adviser for additional
information. These illustrations are not meant to imply any future rate of
return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.10% 32.32% 35.14% 39.84% 43.22%
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.26 7.39 7.71 8.31 8.81
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.60 2.20 2.11 1.96 1.85
</TABLE>
Classic Missouri
The Tax Free Yield Advantage
(39.84% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
5.00% Tax free investment
8.31% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,294.80) NONE
After-tax income: $1,955.20 $5,000.00
The 1995 combined tax bracket takes into account federal and Missouri State
income taxes. Assuming the deductibility of State taxes on the federal return,
the bracket is 39.84% 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 represent actual
results of an investment in the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As at October
13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 16.9% of the outstanding
shares, which were held on behalf of its customers who are the beneficial owners
of such shares, and as to which it had voting power under certain limited
circumstances. In addition, as of such date, the following shareholders owned
beneficially and of record the percentages of the outstanding shares of the Fund
indicated after their names: Ted Drewes, Inc., Towne Country, MO (10.3%) and
Dolores T. Stegman TTEE, u/a dtd 6/20/91, FBO Dolores Stegman Rev Tr, Raytown,
MO (6.3%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Missouri Tax Free Fund to EV Classic Missouri Municipals
Fund on January 1, 1996.
<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
and Missouri State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND MISSOURI STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MO STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- --------------------------------------------------------------
(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 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Missouri personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Missouri tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Missouri taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. 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 Missouri 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 Missouri Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Missouri 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 Missouri personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NORTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and North Carolina State
personal income taxes. The Fund currently seeks to achieve its investment
objective by investing its assets in the North Carolina Municipals Portfolio
(the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain North Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in North Carolina issuers. Such information supplements the
information in the Prospectus, it is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of North Carolina issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The economic profile of the State consists of a combination of industry,
agriculture and tourism. The State's seasonally adjusted unemployment rate in
June 1995 was 4.4% of the labor force, as compared with an unemployment rate
of 5.6% nationwide. The labor force has undergone significant change during
recent years. The State has moved from an agricultural to a service and "goods
producing" economy. Those persons displaced by farm mechanization and farm
consolidations have, in large measure, sought and found employment in other
pursuits.
During fiscal 1991 and 1992, the State was forced to employ various non-
recurring items and budget reductions in order to balance the State's budget.
Among other things, the State deferred Basic Education Program improvements.
In addition, the State also implemented approximately $640 million in tax
increases, including raising the State sales tax from 3% to 4%. This 4% tax is
the State's portion of the total 6% sales tax with the rest dedicated to local
governments. A 4% corporate income tax surcharge was also implemented and is
scheduled to terminate on January 1, 1995. The State's fiscal position has
improved considerably since 1992, with the general fund balance increasing
from a deficit position to a surplus equal to 11% of 1994 expenditures.
The State is a defendent in pending court actions involving the taxing of
benefits paid to federal retirees and related matters. Although specific
claims for damages have not been precisely calculated, the amount could exceed
$400 million over a period of years. The State is also a defendent in several
other litigations which, in the opinion of the Department of the Treasurer,
could have a material adverse affect on the State's ability to meet its
obligations. In the Leandro action, the plaintiffs claim that the State has
failed to provide adequate or substantially equal educational opportunities to
children. In the Francisco action, the plaintiffs claim that the State has
failed to fund programs to educate non-English speaking students. In a series
of cases involving State retirement benefits, disabled retirees are
challenging on various grounds changes in the formula for paying retirement
benefits. Damages could exceed $100 million. In the Fulton case, the
imposition of the State's intangible personal property tax on shares of stock
has been challenged.
FEES AND EXPENSES
INVESTMENT ADVISER
As at August 31, 1995, the Portfolio had net assets of $195,178,724. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$851,448 (equivalent to 0.44% of the Portfolio's average daily net assets for
such period). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $744,143 (equivalent to 0.42% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $373,030
(equivalent to 0.40% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995, $17,410 of the Fund's operating expenses were
allocated to the Administrator. For the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $14,638 of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, including the Rule 12b-1
Trustees, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid to Authorized Firms sales commissions of
$40,252 on sales of Fund shares. During the same period, the Fund paid sales
commission payments under the Plan to the Principal Underwriter aggregating
$49,635. Such payments reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $46 were
imposed on early redeeming shareholders and paid to the Principal Underwriter
to reduce Uncovered Distribution Charges. As at August 31, 1995 the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $653,000 (which amount was
equivalent to 10.4% of the Fund's net assets on such day). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $13,397, of which $10,668 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $157.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $500. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, for the eleven months ended
August 31, 1994, and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995 earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -------------------
Donald R. Dwight .... $33 $2,096(2) $135,000(4)
Samuel L. Hayes, III 32 2,123(3) 150,000(5)
Norton H. Reamer .... 31 2,133 135,000
John L. Thorndike ... 32 2,227 140,000
Jack L. Treynor ..... 34 2,196 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $525 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, David C. Reilly (38) is a Vice President of the Portfolio. Mr.
Reilly has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Reilly has been a Vice President of BMR since 1992 and Eaton Vance since
1991, and is an officer of various investment companies managed by Eaton Vance
or BMR. Prior to joining Eaton Vance, Mr. Reilly was a Vice President and a
municipal bond analyst at Scudder, Stevens & Clark (1984-1991).
PERFORMANCE 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 October 23, 1991 through August 31, 1995. The total return for
the period prior to the Fund's commencement of operations on December 7, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE*
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE* ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 10/23/91 $1,000 $1,235.59 $1,235.59 23.56% 5.63% 23.56% 5.63%
1 Year Ended 8/31/95** 8/31/94 $1,000 $1,050.18 $1,040.18 5.02% 5.02% 4.02% 4.02%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares acquired
through the reinvestment of distributions or 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 Fund's current Prospectus.
** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.58%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.58% would be 7.20%, assuming a
combined federal and State tax rate of 36.35%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.63%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.73%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 35.1%
Aa or AA 29.9
A 26.1
Baa or BBB 7.5
Ba or BB --
Below B --
Not rated 1.4
-----
Total 100.0%
The following compares the taxable equivalent of an investment in the Fund
yielding a hypothetical 5.0% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
North Carolina tax brackets applicable for 1995: 20.95% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 33.04% for single
filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 36.35% for single filers with taxable income from $56,551
to $117,950 and joint filers from $94,251 to $143,600; 40.96% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 44.28% for single and joint filers with taxable
income over $256,500. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same range of
income. The combined brackets are not simply the sum of each of the taxes, as
they assume that State taxes are deducted on the federal income tax return,
reducing the effective combined tax brackets. These tax brackets do not take
into account the phaseout of personal exemptions and limitation on
deductibility of itemized deductions over certain ranges of income. Investors
who do not itemize or who are subject to such phaseout or limitation will have
a higher combined tax bracket than indicated above. In addition, the combined
tax brackets were calculated using the highest State income tax rate within
each bracket. Accordingly, some taxpayers will have lower combined tax
brackets and taxable equivalent yields over these ranges of income. Investors
should consult with their tax adviser for additional information. These
illustrations are not meant to imply any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.95% 33.04% 36.35% 40.96% 44.28%
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.33 7.47 7.86 8.47 8.97
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.57 2.18 2.07 1.92 1.81
</TABLE>
Classic North Carolina
The Tax Free Yield Advantage
(40.96% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.92% After-tax yield
5.00% Tax free investment
8.47% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,331.20) NONE
After-tax
income: $1,918.80 $5,000.00
The 1995 combined tax bracket takes into account federal and North
Carolina State income taxes. Based on an investment yielding 5.00%, and
assuming the deductibility of state taxes on the federal return, the bracket
is 40.96% 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. The chart is based on 3-month bank CDs (Sources: The Wall Street
Journal and Eaton Vance Management). Tax free yields are shown for
illustration purposes only and are not meant to represent actual results of an
investment in the Fund. See your financial adviser for the Fund's current
yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 10.01% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date, the following
shareholder owned of record the percentage of outstanding shares indicated
after its name: Healthsource North Carolina Inc., Morrisville, NC 27560-8508
(31.2%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic North Carolina Tax Free Fund to EV Classic
North Carolina Municipals Fund on January 1, 1996.
<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 and the North Carolina State income tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND NORTH CAROLINA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN NC STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- --------------- ------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------- --------------- ------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551 - $117,950 $ 94,251 - $143,600 36.35 6.28 7.07 7.86 8.64 9.43 10.21 11.00
$117,951 - $256,500 $143,601 - $256,500 40.96 6.78 7.62 8.47 9.32 10.16 11.01 11.86
Over $256,500 Over $256,500 44.28 7.18 8.08 8.97 9.87 10.77 11.67 12.56
<FN>
<F1> Net amount subject to the federal and North Carolina personal income tax after deductions and exemptions.
<F2> Tax brackets are calculated using the highest North Carolina tax rate within each bracket. Accordingly, taxpayers with taxable
income within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined
tax rates assume that North Carolina taxes are itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield
than those indicated above. 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 North Carolina 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 North Carolina Municipals
Fund will achieve any specific tax exempt yield. While it is expected that the
Fund will invest principally in obligations, the interest from which is exempt
from the regular federal income tax and North Carolina 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 North Carolina personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax,
is treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC OREGON MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Oregon State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Oregon Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Oregon considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Oregon issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Oregon issuers. Neither
the Trust nor the Portfolio has independently verified this information.
The principal sources of State tax revenues are the personal income and
corporation excise taxes; there is no State sales tax. Recent State financial
results have been favorable, reflecting the improved economy through strong
growth in tax resources. General fund financial performance has been strong.
After addressing financial problems in the earlier part of the recession, the
State was able to maintain satisfactory general fund operations. The State
budget is on a two year basis. The 1991-1993 budget ended with a fund balance of
$302 million, equal to 14% of expenditures and the ending balance for the
1993-95 biennium was $500 million. General Fund revenues for the 1995-97
biennium are budgeted to increase 6.5% while expenditures are budgeted to
increase 14%.
In 1991 and 1992, in response to concerns over diminishing salmon runs,
three species of Snake River salmon were placed on the Endangered Species list.
More recently, the National Marine Fisheries Service and the U.S. Fish and
Wildlife Service have commenced status reviews of hundreds of additional salmon
and trout populations in the Columbia Basin and throughout Western Oregon. The
Snake River salmon listings have already had substantial economic impacts,
primarily through increased electricity rates and related impacts on
rate-sensitive industries such as the aluminum industry. In addition, the State
is now working on setting minimum stream flows for waterways that have been
formally designated as scenic waterways, and is revising and implementing river
basin plans that restrict new (but not established) access to surface and ground
water diversions and withdrawals. These restrictions will make it more difficult
to obtain new water rights and may slow urban and agricultural development and
expansion.
In November 1990, Oregon voters adopted Ballot Measure 5 which amended the
State constitution to impose a general cap on ad valorem property taxes. The
limit is subject to certain exceptions and will be phased in over a 5-year
period ending with the 1996 tax year. The passage of Ballot Measure 5 has not
caused a down-grading of the State's rating with Moody's or S&P, however, S&P
has revised the outlook on the State's debt from "Stable" to "Negative" as a
result of the increased costs imposed on the State by Measure 5. The limitations
of Ballot Measure 5 generally do not apply to taxes imposed to pay debt service
on general obligations of the State. Moreover, because the State currently
receives its revenues from sources other than property taxes, Ballot Measure 5
will not directly reduce the State revenues. However, until 1996, the State is
required to use its general fund to replace any revenue lost by the public
school system due to the limitations of Ballot Measure 5. Therefore, the State
may be required to reallocate its future budgets or to seek new sources of
revenue to aid in school funding. The replacement requirement is estimated to
cost the State $1.5 billion in the 1993-95 biennium. In 1993, voters rejected
Measure 1, a proposal to fund Measure 5 requirements with a 5% sales tax.
The main impact of Ballot Measure 5 will be felt by local taxing units such
as cities, counties, and districts. To date, only a few local governments have
experienced a decrease in revenues from Ballot Measure 5. In recent years,
Oregon has experienced population growth above the national average and property
values have risen despite the national recession. If this trend continues, the
real market value base of property against which the limited tax rate may be
imposed may be more than enough to support the needs of Oregon's local
governments. Moreover, Ballot Measure 5 does not limit the amount of user fees
for services provided by governmental units that may be collected, and local
governments may rely more on such fees to finance local improvements. At this
time, however, the ultimate effect of Ballot Measure 5 on the continuing ability
of State and local governments to satisfy their debt obligations is not possible
to predict. In 1991, the Oregon legislature passed several bills in an effort to
ease the burden of Ballot Measure 5 on local governments. A variety of actions
taken by local governments in response to Ballot Measure 5 or under this new
legislation may be challenged in the courts as unconstitutional.
In November, 1994, voters approved three measures affecting the State's
penal system. The most significant in terms of financial impact for the State is
Measure 11. This measure established mandatory minimum sentences for certain
felons. Projected need for additional prison beds is expected to require $462
million in capital expenditures and an increase in prison operating expenses of
$100 million annually by 1998.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $146,390,921. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$609,837 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $534,681 (equivalent to 0.41% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $243,569 (equivalent to 0.37%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 28, 1993, to the fiscal year ended August 31, 1994, $20,572 and
$17,241, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended August 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $9,224 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $9,677. Such payments reduced Uncovered Distribution
Charges. During such period no contingent deferred sales charges were paid to
the Principal Underwriter. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $224,000 (which amount was equivalent to 22.7% of the
Fund's net assets on such date). During the fiscal year ended August 31, 1995,
the Fund paid service fee payments under the Plan aggregating $2,562, of which
$2,383 was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $152.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,946. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $56,584.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ --------- ------------------
Donald R. Dwight .......... $0 $1,563(2) $135,000(4)
Samuel L. Hayes, III ...... 0 1,608(3) 150,000(5)
Norton H. Reamer .......... 0 1,631 135,000
John L. Thorndike ......... 0 1,718 140,000
Jack L. Treynor ........... 0 1,647 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Cynthia J. Clemson (32) has served as a Vice President of the Portfolio since
June 19, 1995. Ms. Clemson has been a Vice President of BMR and Eaton Vance
since 1993 and an employee of Eaton Vance since 1985. Ms. Clemson is an officer
of various investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from December 24, 1991 through August 31, 1995 and for the one year period
ended August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 28, 1993 reflects 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.
<TABLE>
VALUE OF $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVEST- INVEST-
MENT BEFORE DE- MENT AFTER DE- TOTAL RETURN BEFORE TOTAL RETURN AFTER
DUCTING THE DUCTING THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 12/24/91 $1,000 $1,267.16 $1,267.16 26.72% 6.63% 26.72% 6.63%
1 Year
Ended
8/31/95<F2> 8/31/94 $1,000 $1,071.08 $1,061.08 7.11% 7.11% 6.11% 6.11%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of distributions, or 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 Fund's current Prospectus.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.26%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.26% would be 6.78%, assuming a
combined federal and State tax rate of 37.21%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.40%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.49%. 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 Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 29.1%
Aa or AA 37.9
A 23.2
Baa or BBB 6.0
Ba or BB 1.0
B --
Below B --
Not rated 2.8
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 4.5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Oregon State income tax brackets applicable for 1995: 22.65% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 34.48% for
single filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 37.21% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 41.76% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 45.04% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
assumed Oregon State income tax rate is 9%. The combined brackets are not simply
the sum of each of the taxes, as they assume that State taxes are deducted on
the federal income tax return, reducing the effective combined tax brackets.
These brackets do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income. Investors who do not itemize or who are subject to such phaseout or
limitation will have a higher combined tax bracket than indicated above.
Investors should consult with their tax advisers for additional information.
These illustrations are not meant to imply or predict any future rate of return
for the Fund.
<PAGE>
<TABLE>
<CAPTION>
TAX BRACKET
22.65% 34.48% 37.21% 41.76% 45.04%
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent ............. 5.82 6.87 7.17 7.73 8.19
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.51 2.13 2.04 1.89 1.79
</TABLE>
Classic Oregon
The Tax Free Yield Advantage
(41.76% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.89% After-tax yield
4.50% Tax free investment
7.73% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,357.20) NONE
After-tax
income: $1,892.80 $4,500.00
The 1995 combined tax bracket takes into account federal and Oregon State
income taxes. Assuming the deductibility of State taxes on the federal return,
the bracket is 41.76% 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
(Sources: The Wall Street Journal and Eaton Vance Management). Tax free yields
are shown for illustration purposes only and are not meant to represent actual
results of an investment in the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
and Donaldson Lufkin Jenrette, New York, NY, were the record owners of
approximately 24.3% and 5.5% 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 have voting power under certain limited circumstances. In
addition, as of such date, John H. Dunlevy, Bend, Oregon, owned beneficially and
of record 6.0% of the outstanding shares of the Fund. To the knowledge of the
Trust, no other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Oregon Tax Free Fund to EV Classic Oregon Municipals Fund
on January 1, 1996.
<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
and Oregon State income tax laws and tax rates applicable for 1995. It gives the
approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND OREGON STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- OR 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> <C>
Up to $ 23,350 Up to $ 39,000 22.65% 5.17% 5.82% 6.46% 7.11% 7.76% 8.40% 9.05%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.48 6.11 6.87 7.63 8.39 9.16 9.92 10.68
$ 56,551 - $117,950 $ 94,251 - $143,600 37.21 6.37 7.17 7.96 8.76 9.56 10.35 11.15
$117,951 - $256,500 $143,601 - $256,500 41.76 6.87 7.73 8.59 9.44 10.30 11.16 12.02
Over $256,500 Over $256,500 45.04 7.28 8.19 9.10 10.01 10.92 11.83 12.74
<FN>
<F1> Net amount subject to federal and Oregon personal income tax after
deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Oregon tax rate
within the bracket. Taxpayers with taxable income within this bracket may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax rates assume that Oregon taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above.
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 Oregon State income taxes) for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above. The tax brackets and taxable equivalent yields do not take into account
the limited deductibility of federal income tax withholding in arriving at state
taxable income, which may decrease the taxable equivalent yield of the Fund to
certain investors.
Of course, no assurance can be given that EV Classic Oregon Municipals Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations, the interest from which is exempt from
the regular federal income tax and Oregon 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 Oregon 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 appliable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC SOUTH CAROLINA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and South Carolina State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the South Carolina Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain South Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in South Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of South Carolina issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The South Carolina Constitution requires the General Assembly to provide a
balanced budget and requires that if there is a deficit, such deficit shall be
provided for in the succeeding fiscal year. The State Constitution also provides
that (i) the State Budget and Control Board may, if a deficit appears likely,
effect such reductions in appropriations as may be necessary to prevent a
deficit, (ii) annual increases in State appropriations may not exceed the
average growth rate of the economy of the State, (iii) that the annual increase
in the number of State employees may not exceed the average growth of the
population of the State, and (iv) a General Reserve Fund be maintained in an
amount equal to 3% of General Fund revenue for the latest fiscal year. The State
also maintains a Capital Reserve Fund equal to 2% of the General Reserve Fund.
Despite several spending reductions in fiscal 1992, the State recorded a
budgetary basis operating deficit of $54 million due to lower than anticipated
sales and corporate-income tax revenues. The State ended fiscal 1992 with only
$7.6 million in its budgetary general fund. In June 1993, the presidential
base-closing commission voted to close the Charleston Naval Base. South Carolina
has estimated lost revenues of $100 million over the three-year period from July
1, 1993 to June 30, 1996 due to the closing. There can be no guarantee that the
actual cost will not be more or less than the State's estimate. Budgetary
General Fund revenues and expenditures for fiscal 1993 were $3.673 billion and
$3.521 billion, respectively. There was a $151 million surplus of which $33.7
million was deposited into the General Reserve Fund ("Rainy Day Fund") bringing
its total to $100 million. Fiscal 1994 had budgeted revenues and expenditures of
$3.828 billion and $3.795 billion, respectively. No new taxes were implemented.
Fiscal 1994 ended with a General Fund surplus of $248 million. The General
Reserve Fund is now at its fully funded level of $110.2 million. Fiscal 1995 has
budgeted $3.93 billion for expenditures with no new taxes expected.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $61,411,668. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$198,498 (equivalent to 0.33% of the Portfolio's average daily net assets for
such year). For the period from the start of business, February 1, 1994 to
August 31, 1994, the Portfolio paid BMR advisory fees of $106,785 (equivalent to
0.31% (annualized) of the Portfolio's average daily net assets for such period).
The Portfolio's Investment Advisory Agreement with BMR is dated February 1, 1994
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
February 14, 1994, to the fiscal year ended August 31, 1994, $14,531 and $9,477,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended August 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $11,146 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $11,396. Such payments reduced Uncovered Distribution
Charges. During such period, contingent deferred sales charges aggregating
approximately $100 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $164,053 (which
amount was equivalent to 13.2% of the Fund's net assets on such date). During
the fiscal year ended August 31, 1995, the Fund paid service fee payments under
the Plan aggregating $3,019, of which $2,933 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $15.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,203. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $16,809.
BROKERAGE
For the fiscal year ended August 31, 1995, and the period from the start of
business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ----------------
Donald R. Dwight .......... $0 $1,164(2) $135,000(4)
Samuel L. Hayes, III ...... 0 1,222(3) 150,000(5)
Norton H. Reamer .......... 0 1,254 135,000
John L. Thorndike ......... 0 1,336 140,000
Jack L. Treynor ........... 0 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $294 of deferred compensation.
(3) Includes $393 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
David C. Reilly (38) is a Vice President of the Portfolio. Mr. Reilly has served
as a Vice President of the Portfolio since June 19, 1995. Mr. Reilly has been a
Vice President of BMR since 1992 and Eaton Vance since 1991, and is an officer
of various investment companies managed by Eaton Vance or BMR. Prior to joining
Eaton Vance, Mr. Reilly was a Vice President and a municipal bond analyst at
Scudder, Stevens & Clark (1984-1991).
PERFORMANCE 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 October 2, 1992 through August 31, 1995. The total return for the
period prior to the Fund's commencement of operations on February 14, 1994
reflects 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN TOTAL RETURN
MENT BEFORE DE- MENT AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 10/02/92 $1,000 $1,170.68 $1,170.68 17.07% 5.54% 17.07% 5.54%
1 Year
Ended
8/31/95** 8/31/94 $1,000 $1,053.78 $1,043.78 5.38% 5.38% 4.38% 4.38%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares acquired
through the reinvestment of dividends and distributions and any appreciation in value or 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 Fund's current Prospectus.
** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.54%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.54% would be 7.07%, assuming a
combined federal and State tax rate of 35.83%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.46%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.55%. 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 Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 39.1%
Aa or AA 14.8
A 27.4
Baa or BBB 15.8
Ba or BB --
B --
Below B --
Not rated 2.9
-----
Total 100.0%
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 4.5% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used are the federal and
South Carolina income tax brackets applicable for 1995: 20.95% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 33.04% for
single filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 35.83% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 40.48% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 43.83% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. Tax
brackets are calculated using the highest state rate within each bracket. These
brackets assume that South Carolina taxes are deducted on the federal income tax
return, and do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income, which increase the effective top federal tax rate for certain taxpayers.
The combined brackets are not simply the sum of each of the taxes, as they
assume that State taxes are deducted on the federal income tax return, reducing
the effective combined tax brackets. Investors should consult with their tax
advisers for more information. This illustration is not meant to imply or
predict any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.95% 33.04% 35.83% 40.48% 43.83%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent ............. 5.69 6.72 7.01 7.56 8.01
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.57 2.18 2.09 1.93 1.83
</TABLE>
Classic South Carolina
The Tax Free Yield Advantage
(40.48% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.93% After-tax yield
4.50% Tax free investment
7.56% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,315.60) NONE
After-tax income: $1,934.40 $4,500.00
The 1995 combined tax bracket takes into account federal and South Carolina
State income taxes. Assuming the deductibility of state taxes on the federal
return, the bracket is 40.48% 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 represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 15, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately % of the outstanding shares, which were
held on behalf of its customers who are the beneficial owners of such shares,
and as to which it had voting power under certain limited circumstances. As of
the same date, the following shareholders owned beneficially and of record, the
percentages of outstanding shares of the Fund indicated after their names:
Anthony P. Cuozzo & Joseph A. Cuozzo, JTWROS, Surfside Beach, South Carolina
(39.28%); Barbara B. McDaniel, Awendaw, South Carolina (9.13%) and PaineWebber
FBO Douglas P. Magann and Sarah R. Magann JTWROS, Georgetown, South Carolina
(8.19%). To the knowledge of the Trust, no other person beneficially owns more
than 5% of the Fund's outstanding shares.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic South Carolina Tax Free Fund to EV Classic South Carolina
Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
TAX EXEMPT VERSUS TAXABLE SECURITIES
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income tax
and South Carolina State income tax laws and tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND SOUTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------- ------------ SC 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> <C>
Up to $ 23,350 Up to-$ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351-$ 56,500 $ 39,001-$ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551-$117,950 $ 94,251-$143,600 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$117,951-$256,000 $143,601-$256,500 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $256,500 Over $256,500 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
<FN>
<F1> Net amount subject to federal and South Carolina personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest South Carolina tax rate within the bracket. Taxpayers with taxable
income within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined
tax rates assume that South Carolina taxes are Itemized Deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal Income Tax Return will have a higher combined bracket and higher taxable equivalent yield
than those indicated above. 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 South Carolina State income tax)
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 South Carolina Municipals
Fund will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and South Carolina 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 South Carolina personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credit that may be available.
The information set forth above is as of the date of this Statement of
Information. Subsequent tax law changes could result in prospective or
retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC TENNESSEE MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Tennessee State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Tennessee Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Tennessee considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Tennessee issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Tennessee issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Tennessee's State Constitution requires that (1) the total expenditures of
the State for any fiscal year shall not exceed the State's revenues and
reserves, including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations from
State tax revenues exceed the estimated rate of growth of the State's economy.
In the past, the Governor and the General Assembly have had to restrict
expenditures to comply with the State Constitution.
The financial operations of the State have been negatively impacted by the
recent national economic downturn. The State was forced to partially drain down
its General Fund balance to support operations. The General Fund balance was
reduced to $7.3 million in 1991, however, operating surpluses for 1992 and 1993
have built up the balance to $150.1 million for 1993. Several new programs could
have a negative impact on the financial operations of the State. A half percent
increase in the sales tax rate, imposed in fiscal 1993, was dedicated to a new
education program. Tennessee will provide healthcare to the entire Medicaid
population as well as the uninsured population in the State. The service tax
that was implemented to help fund this program was repealed.
FEES AND EXPENSES
INVESTMENT ADVISER
As at August 31, 1995, the Portfolio had net assets of $58,673,303. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$177,788 (equivalent to 0.31% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $125,060 (equivalent to 0.28% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, BMR would have earned, absent a fee reduction, advisory fees of $32,069
(equivalent to 0.19% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a portion
of expenses related to the operation of the Portfolio in the amount of $4,724.
The Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 9, 1993, to the fiscal year ended August 31, 1994, $16,872 and $13,987,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, as required by Rule 12b-1. During the
fiscal year ended August 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $8,450 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $8,628. Such payments reduced Uncovered Distribution
Charges. During such period no contingent deferred sales charges were paid to
the Principal Underwriter. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $116,000 (which amount was equivalent to 10.7% of the
Fund's net assets on such date). During the fiscal year ended August 31, 1995,
the Fund paid service fee payments under the Plan aggregating $2,319, of which
$2,202 was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $20 for repurchase transactions handled by the Principal Underwriter
(being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,903. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $13,033.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ----------------
Donald R. Dwight .......... $0 $1,164(2) $135,000(4)
Samuel L. Hayes, III ...... 0 1,222(3) 150,000(5)
Norton H. Reamer .......... 0 1,254 135,000
John L. Thorndike ......... 0 1,336 140,000
Jack L. Treynor ........... 0 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $294 of deferred compensation.
(3) Includes $393 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Cynthia J. Clemson (32) has served as a Vice President of the Portfolio since
June 19, 1995. Ms. Clemson has been a Vice President of BMR and Eaton Vance
since 1993 and an employee of Eaton Vance since 1985. Ms. Clemson is an officer
of various investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund from August 25, 1992 through August 31, 1995 and for the one year period
ended August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 9, 1993 reflects 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN TOTAL RETURN
MENT BEFORE DE- MENT AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/25/92 $1,000 $1,196.21 $1,196.21 19.62% 6.11% 19.62% 6.11%
1 Year
Ended
8/31/95** 8/31/94 $1,000 $1,063.24 $1,053.24 6.32% 6.32% 5.32% 5.32%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
*No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares acquired
through the reinvestment of distributions, or 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 Fund's current Prospectus.
**If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.52%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.52% would be 6.97%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.66%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.76%. 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 Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 38.1%
Aa or AA 23.1
A 20.7
Baa or BBB 16.5
Ba or BB --
B --
Below B --
Not rated 1.6
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 4.5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Tennessee State income tax brackets applicable for 1995: 20.10% for single
filers with taxable income up to $23,350 and joint filers up to $39,000; 32.32%
for single filers with taxable income from $23,351 to $56,550 and joint filers
from $39,001 to $94,250; 35.14% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600; 39.84% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 43.22% for single and joint filers with taxable income
over $256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
assumed Tennessee State income tax rate is 6%. The combined brackets are not
simply the sum of each of the taxes, as they assume that State taxes are
deducted on the federal income tax return, reducing the effective combined tax
brackets. These brackets do not take into account the phaseout of personal
exemptions and limitation on deductibility of itemized deductions over certain
ranges of income. Investors who do not itemize or who are subject to such
phaseout or limitation will have a higher combined tax bracket than indicated
above. Investors should consult with their tax adviser for additional
information. These illustrations are not meant to imply any future rate of
return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.10% 32.32% 35.14% 39.84% 43.22%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent ............. 5.63 6.65 6.94 7.48 7.93
<CAPTION>
TAX BRACKET*
15% 28% 31% 36% 39.6%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.76 2.34 2.24 2.08 1.96
</TABLE>
*Bank deposits are not subject to Tennessee State income tax. Accordingly, the
combined tax brackets applicable to after-tax yields are 15%, 28%, 31%, 36% and
39.6%.
Classic Tennessee
The Tax Free Yield Advantage
(39.84% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After tax-yield
4.50% Tax free investment
7.48% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,170.00) NONE
After-tax income: $2,080.00 $4,500.00
The 1995 combined tax bracket takes into account federal and Tennessee State
income taxes. Assuming the deductibility of State taxes on the federal return,
the bracket is 39.84% 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). After-tax yields
of bank CDs reflect only the federal income tax rate of 36% applicable over the
same range of income, as bank CDs are exempt from the Tennessee State income
tax. Tax free yields are shown for illustration purposes only and are not meant
to represent actual results of an investment in the Fund. See your financial
adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 63.2% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date, the following shareholders owned beneficially and
of record the percentages of the outstanding shares of the Fund indicated after
their names: Buford Deford & Jane Deford, Nashville, TN (7.0%) and Patrick B.
Apfeld & Kristine H. Apfeld Jt Ten, Signal Mountain, TN (5.4%). To the knowledge
of the Trust, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares on such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Tennessee Tax Free Fund to EV Classic Tennessee Municipals
Fund on January 1, 1996.
<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
and Tennessee State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND TENNESSEE STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------- ------------ TN 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% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351-$ 56,500 $ 39,001-$ 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551-$117,950 $ 94,251-$143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951-$256,000 $143,601-$256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Tennessee personal income tax after deductions and exemptions.
<F2> The combined tax rates assume that Tennessee taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. 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 Tennessee 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 Tennessee Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Tennessee 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 Tennessee personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC VIRGINIA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Virginia State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Virginia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Virginia issuers. Such information supplements the information in the
Prospectus, it is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Virginia issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Commonwealth of Virginia has had a tradition of low debt, and a large
proportion of its general obligation bonds has been supported by particular
revenue-producing projects. However, a trend towards more use of non-general
obligation debt, which is not subject to constitutional limits on borrowing, is
now changing the Commonwealth's debt profile. In recent years, the Commonwealth
has expanded its limited obligation borrowings through various financing
vehicles such as the Virginia Public Building Authority and the Virginia College
Building Authority, and has embarked upon a substantial transportation bonding
program to which certain increases in retail sales and motor vehicle-related
taxes enacted in 1986 are dedicated. The general fund is the Commonwealth's
major operating fund and accounts for about half of Commonwealth expenditures.
It covers all functions except highways and Federal grant disbursements, for
which there are special revenue funds.
While the Commonwealth has had a long history of sound financial operations,
variations of a cyclical nature have occurred during the past several years.
During fiscal year 1992, financial operations were somewhat more favorable than
expected. Revenues of $5.6 billion exceeded expenditures by approximately $150
million with $44 million in increased revenues and the balance in decreased
expenditures ordered by the Governor in December of 1991. The closing balance at
June 30, 1992 was $195.1 million, of which $142.3 million will be
reappropriated, leaving $52.8 million as an unreserved, undesignated balance,
the first such balance in four years. The fiscal 1993 ending balance for the
General Fund was $331.8 million of which $59.7 is unreserved, undesignated.
Revenues for the 1993 fiscal year were 8.9% higher than fiscal year 1992, a $103
million increase. At the close of the biennium ending June 30, 1994, the Fund
balance amounted to $518.7 million of which $81 million was reserved, including
$79.9 million for the Revenue Stabilization Fund. Preliminary results for fiscal
1995 indicate a general fund surplus of $65 million.
Virginia's economy is generally affected by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of Virginia
are manufacturing (such as electronic equipment, shipbuilding and chemical
products), minerals (chiefly coal), service sector occupations (including
banking and insurance), agriculture and tourism. Unemployment rates are
typically below the national average, but because of a large military and
civilian government employment component, and the related civilian employment, a
substantial decrease in defense or other governmental spending could have a
material adverse effect on both the unemployment rate and the economy of the
Commonwealth in general.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $191,747,922. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$834,074 (equivalent to 0.44% of the Portfolio's average daily net assets for
such period). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $744,841 (equivalent to 0.43% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $378,975 (equivalent
to 0.41% (annualized) of the Portfolio's average daily net assets for such
period). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I of
this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995, $19,518 of the Fund's operating expenses were
allocated to the Administrator. For the period from the start of business,
December 17, 1993, to the fiscal year ended August 31, 1994, $13,546 the Fund's
operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. During the fiscal year ended August 31, 1995, the
Principal Underwriter paid to Authorized Firms sales commissions of $8,156 on
sales of Fund shares. During the same period, the Fund paid sales commission
payments under the Plan to the Principal Underwriter aggregating $10,351. Such
payments reduced Uncovered Distribution Charges. During such period, there were
no contingent deferred sales charges imposed on early redeeming shareholders. As
at August 31, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$163,000 (which amount was equivalent to 10.9% of the Fund's net assets on such
day). During the fiscal year ended August 31, 1995, the Fund paid service fee
payments under the Plan aggregating $2,765, of which $2,550 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $52.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $2,535. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, for the eleven months ended
August 31, 1994, and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995 earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
<PAGE>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ----------------
Donald R. Dwight .......... $0 $2,096(2) $135,000(4)
Samuel L. Hayes, III ...... 0 2,123(3) 150,000(5)
Norton H. Reamer .......... 0 2,133 135,000
John L. Thorndike ......... 0 2,227 140,000
Jack L. Treynor ........... 0 2,196 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $535 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
David C. Reilly (38) is a Vice President of the Portfolio. Mr. Reilly has served
as a Vice President of the Portfolio since June 19, 1995. Mr. Reilly has been a
Vice President of BMR since 1992 and Eaton Vance since 1991, and is an officer
of various investment companies managed by Eaton Vance or BMR. Prior to joining
Eaton Vance, Mr. Reilly was a Vice President and a municipal bond analyst at
Scudder, Stevens & Clark (1984-1991).
PERFORMANCE 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 July 26, 1991 through August 31, 1995. The total return for the period
prior to the Fund's commencement of operations on December 17, 1993 reflects 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN TOTAL RETURN
MENT BEFORE DE- MENT AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE*
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 7/26/91 $1,000 $1,289.68 $1,289.68 28.97% 6.40% 28.97% 6.40%
1 Year
Ended
8/31/95** 8/31/94 $1,000 $1,065.11 $1,055.11 6.51% 6.51% 5.51% 5.51%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares
acquired through the reinvestment of distributions or 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 Fund's current Prospectus.
** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.49%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.49% would be 6.90%, assuming a
combined federal and State tax rate of 34.97%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.69%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.80%. 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 Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 23.1%
Aa or AA 41.4
A 24.0
Baa or BBB 7.2
B --
Below B --
Not rated 4.3
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 5.0% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Virginia income tax brackets applicable for 1995: 19.89% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 32.14% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250; 34.97% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 39.68% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 43.07% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
combined brackets are not simply the sum of each of the taxes, as they assume
that State taxes are deducted on the federal income tax return, reducing the
effective combined tax brackets. Tax brackets are calculated using the highest
state rate within each bracket. These brackets do not take into account the
phaseout of personal exemptions and limitation on deductibility of itemized
deductions over certain ranges of income. Investors who do not itemize or who
are subject to such phaseout or limitation will have a higher combined tax
bracket than indicated above. Investors should consult with their tax adviser
for additional information. These illustrations are not meant to imply or
predict any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
19.89% 32.14% 34.97% 39.68% 43.07%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.24 7.37 7.69 8.29 8.78
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.60 2.21 2.11 1.96 1.85
</TABLE>
Classic Virginia
The Tax Free Yield Advantage
(39.68% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
5.00% Tax free investment
8.29% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,289.60) NONE
After-tax
income: $1,960.40 $5,000.00
The 1995 combined tax bracket takes into account federal and Virginia State
income taxes. Assuming the deductibility of state taxes on the federal return,
the bracket is 39.68% 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 represent actual
results of an investment in the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
and PaineWebber Incorporated for the benefit of Olive M. Wolters, Hanover,
Virginia were the record owners of approximately 39.81% and 6.71% 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 the same date, the following
shareholders owned of record the percentages of outstanding shares indicated
after their names: Kevin Miley Fogarty, Falls Church, VA 22043 (12.53%) and
PaineWebber for the benefit of Cynthia M. Gumbinner, Trustee, Cynthia M.
Gumbinner Trust U/A dtd 12/10/92, Annandale, VA (5.66%). To the knowledge of the
Trust, no other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Virginia Tax Free Fund to EV Classic Virginia Municipals
Fund on January 1, 1996.
<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
and Virginia State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND VIRGINIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------- ------------ VA STATE -------------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- --------------------------------- ------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to-$ 39,000 19.89% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 32.14 5.89 6.63 7.37 8.10 8.84 9.58 10.32
$ 56,551-$117,950 $ 94,251-$143,600 34.97 6.15 6.92 7.69 8.46 9.23 10.00 10.76
$117,951-$256,500 $143,601-$256,500 39.68 6.63 7.46 8.29 9.12 9.95 10.78 11.60
Over $256,500 Over $256,500 43.07 7.03 7.90 8.78 9.66 10.54 11.42 12.30
*Net amount subject to federal and Virginia personal income tax after deductions and exemptions.
+The combined federal and Virginia tax brackets are calculated using the highest Virginia tax rate within each bracket.
Taxpayers with taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields
than indicated above. The combined tax rates assume that Virginia taxes are itemized deductions for federal income tax
purposes. Investors who do not itemize deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. 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 Virginia State income taxes) for
taxpayers with adjusted gross income in excess of $117,400. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,400 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 Virginia Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Virginia personal income taxes,
other income received by the Portfolio and allocated to the Fund may be taxable.
The table does not take into account state or local taxes, if any, payable on
Fund distributions except for regular Virginia personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax,
and regular Virginia personal income tax, is treated as a tax preference item
which could subject the recipient to the federal and Virginia alternative
minimum taxes. The illustrations assume that the federal and Virginia
alternative minimum taxes are 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>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
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
MUNICIPALS FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
C-TFC1/1SAI
<PAGE>
[LOGO]
EV Classic Alabama
Municipals Fund
o
EV Classic Arkansas
Municipals Fund
o
EV Classic Georgia
Municipals Fund
o
EV Classic Kentucky
Municipals Fund
o
EV Classic Louisiana
Municipals Fund
o
EV Classic Maryland
Municipals Fund
o
EV Classic Missouri
Municipals Fund
o
EV Classic North Carolina
Municipals Fund
o
EV Classic Oregon
Municipals Fund
o
EV Classic South Carolina
Municipals Fund
o
EV Classic Tennessee
Municipals Fund
o
EV Classic Virginia
Municipals Fund
o
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 1, 1996
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1996
<TABLE>
<CAPTION>
EV MARATHON MUNICIPALS FUNDS
<S> <C>
EV MARATHON ALABAMA MUNICIPALS FUND EV MARATHON MISSOUURI MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND EV MARATHON VIRGINIA MUNICIPALS FUND
</TABLE>
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate Part I includes cross-references
to the relevant sections of Part II.
TABLE OF CONTENTS
PART I Page
Additional Information about Investment Policies ..... 1
Investment Restrictions .............................. 8
Trustees and Officers ................................ 9
Investment Adviser and Administrator ................. 11
Custodian ............................................ 13
Service for Withdrawal ............................... 13
Determination of Net Asset Value ..................... 14
Investment Performance ............................... 14
Taxes ................................................ 16
Principal Underwriter ................................ 18
Distribution Plan .................................... 18
Portfolio Security Transactions ...................... 20
Other Information .................................... 21
Independent Certified Public Accountants ............. 22
Financial Statements ................................. 23
Appendix ............................................. 24
PART II Page
EV Marathon Alabama Municipals Fund .................. a-1
EV Marathon Arkansas Municipals Fund ................. b-1
EV Marathon Georgia Municipals Fund .................. c-1
EV Marathon Kentucky Municipals Fund ................. d-1
EV Marathon Louisiana Municipals Fund ................ e-1
EV Marathon Maryland Municipals Fund ................. f-1
EV Marathon Missouri Municipals Fund ................. g-1
EV Marathon North Carolina Municipals Fund ........... h-1
EV Marathon Oregon Municipals Fund ................... i-1
EV Marathon South Carolina Municipals Fund ........... j-1
EV Marathon Tennessee Municipals Fund ................ k-1
EV Marathon Virginia Municipals Fund ................. l-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JANUARY 1, 1996, AS SUPPLEMENTED FROM
TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ
IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this Statement of
Additional Information and not otherwise defined have the meanings given them in
the Fund's Prospectus. The Fund is subject to the same investment policies as
those of the Portfolio. The Fund currently seeks to achieve its objective by
investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is also exempt from federal income taxes and is not a tax preference item
for purposes of the federal alternative minimum tax: (i) certain "public
purpose" obligations (whenever issued), which include obligations issued
directly by state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986 which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of interest on
any municipal obligation, the Portfolio will generally rely on an opinion of the
issuer's counsel (when available) and will not undertake any independent
verification of the basis for the opinion. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does have original issue discount or (ii) in
the case of an obligation that does have original issue discount, the sum of the
issue price and any original issue discount that accrued before the obligation
was purchased, subject to a de minimus amount.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds are in most cases revenue
bonds and are generally not secured by the taxing power of the municipality, but
are usually secured by the revenues derived by the authority from payments of
the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of Boston Management and Research (the
"Investment Adviser")) to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by the Portfolio as a
result of any such event, and the Portfolio may also manage (or engage other
persons to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing various
municipal obligations in its portfolio or subsequently acquired by the
Portfolio. The Portfolio will incur additional expenditures in taking protective
action with respect to portfolio obligations in default and assets securing such
obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") and Fitch Investors Service, Inc. ("Fitch") represent
their opinions as to the quality of the municipal obligations which they
undertake to rate. It should be emphasized, however, that ratings are based on
judgment and are not absolute standards of quality. Consequently, municipal
obligations with the same maturity, coupon and rating may have different yields
while obligations of the same maturity and coupon with different ratings may
have the same yield. In addition, the market price of such obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II of
this Statement of Additional Information.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in the industrial
revenue bonds listed above might involve without limitation the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible Federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Pollution control and other industrial development bonds are issued by state
or local agencies to finance various projects, including those of domestic steel
producers, and may be backed solely by agreements with such companies. Domestic
steel companies are expected to suffer the consequences of such adverse trends
as high labor costs, high foreign imports encouraged by foreign productivity
increases and a strong U.S. dollar, and other cost pressures such as those
imposed by anti-pollution legislation. Domestic steel capacity is being reduced
currently by large-scale plant closings and this period of rationalization may
not end until further legislative protection is provided through tariff price
supports or mandatory import quotas, such as those recently enacted for certain
specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
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 February, 1995 unemployment rate was 12.5%, down from 16% for
1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the Federal government. Most Federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the 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. For 1994,
the financial position of Guam has weakened further as it incurred an unaudited
General Fund operating deficit. The administration has taken steps to improve
its financial position; however, there are no guarantees that an improvement
will be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell securities in anticipation of a market decline (a
rise in interest rates) or purchase and later sell securities in anticipation of
a market rise (a decline in interest rates). In addition, a security may be sold
and another purchased at approximately the same time to take advantage of what
the Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand for or
supply of various types of municipal obligations or changes in the investment
objectives of investors. Such trading may be expected to increase the portfolio
turnover rate, which may increase capital gains and the expenses incurred in
connection with such trading. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less).
WHEN ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-
issued" basis, that is, delivery and payment for the securities normally taking
place within a specified number of days after the date of the Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. The Portfolio may also purchase securities on a
when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-issued
basis it records the transaction and reflects the value of the security in
determining its net asset value. Securities purchased on a when-issued basis and
the securities held by the Portfolio are subject to changes in value based upon
the perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e., appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased securities
on a when- issued basis, there will be greater fluctuations in the Portfolio's
net asset value than if it solely set aside cash to pay for when-issued
securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 and Rule 5b-2 thereunder. The Portfolio would anticipate using these
obligations as cash equivalents pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. Longer term fixed-rate bonds
may give the holder a right to request redemption at certain times (often
annually after the lapse of an intermediate term). These bonds are more
defensive than conventional long term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, because the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Because this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets. The Portfolio has no present intention of engaging in securities
lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price fluctuations
in securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases, when
it is economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the corresponding
purchase of securities. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Internal Revenue Code for maintaining qualification
of the Fund as a regulated investment company for Federal income tax purposes
(see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits, which
will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this Statement of Additional Information means the lesser of (a) 67% of the
shares of the Fund present or represented by proxy at a meeting if the holders
of more than 50% of the shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance margin
in connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments. (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this Statement
of Additional Information means the lesser of (a) 67% of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented at the meeting or (b) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the Investment Company Act of
1940 (the "1940 Act"). Whenever the Trust is requested to vote on a change in
the fundamental investment restrictions of the Portfolio (or the Portfolio's 80%
investment policy with respect to State obligations described in the Fund's
current prospectus), the Trust will hold a meeting of Fund shareholders and will
cast its vote as instructed by the shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short; (c) invest more than 15%
of net assets in investments which are not readily marketable, including
restricted securities and repurchase agreements maturing in more than seven
days. Restricted securities for the purposes of this limitation do not include
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 that the Board of Trustees of the Trust or the Portfolio, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security; (d) purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust or the Portfolio or is a member, officer,
director or trustee of any investment adviser of the Trust or the Portfolio, if
after the purchase of the securities of such issuer by the Fund or the Portfolio
one or more of such persons owns beneficially more than 1/2 of 1% of the shares
or securities of both (all taken at market value) of such issuer and such
persons owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities or both (all taken at
market value); or (e) purchase oil, gas or other mineral leases or purchase
interests in oil, gas or other mineral exploration or development programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, 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 (69), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March
22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodubury was elected Assistant
Secretary on Jun 19, 1995.
For additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II of this Statement of Additional Information.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred fees
invested by the Portfolio in the shares of one or more funds in the Eaton Vance
Family of Funds, and the amount paid to the Trustees under the Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Plan will have a negligible effect on the
Portfolio's assets, liabilities, and net income per share, and will not obligate
the Portfolio to retain the services of any Trustee or obligate the Portfolio to
pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of approximately $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.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The following persons manage one or more of the Eaton Vance
tax-free portfolios. For the identity of the Portfolio's portfolio manager, see
the Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part II
of this Statement of Additional Information.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others and engage in other
business activities and may permit other fund clients and other corporations and
organizations to use the words "Eaton Vance" or "Boston Management and Research"
in their names. The Agreement also provides that BMR shall not be liable for any
loss incurred in connection with the performance of its duties, or action taken
or omitted under that Agreement, in the absence of willful misfeasance, bad
faith, gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties thereunder, or for any losses
sustained in the acquisition, holding or disposition of any security or other
investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator. See
"Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of October
31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders,
are officers of the Trust and/or the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees paid under
the Investment Advisory Agreement.
EVC owns all of the stock of 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.
In addition, Eaton Vance owns all the stock of Northeast Properties, Inc., which
is engaged in real estate investment, consulting and management. EVC owns all
the stock of Fulcrum Management, Inc., and MinVen Inc., which are engaged in the
development of precious metal properties. EVC, 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 custody fees that the Portfolio
and the Fund paid to IBT, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal accounts will be credited at net asset value as of
the record date for each distribution. Continued withdrawals in excess of
current income will eventually use up principal, particularly in a period of
declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) will have to be deposited with the
Transfer Agent. A shareholder may not have a withdrawal plan in effect at the
same time he or she has authorized Bank Automated Investing or is otherwise
making regular purchases of Fund shares. The shareholder, the Transfer Agent or
the Principal Underwriter will be able to terminate the withdrawal plan at any
time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total assets.
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transation prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchaed on a when- issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing services uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by the Trustees of the Portfolio.
The Fund and the Portfolio will be closed for business and will not price their
respective shares or interests on the following business holidays: New Year's
Day, Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
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 result. The
calculation assumes that all distributions are reinvested at net asset value on
the reinvestment dates during the period, a complete redemption of the
investment and the deduction of the contingent deferred sales charge at the end
of the period. For information concerning the total return of the Fund, see
"Performance Information" in the Fund's Part II of this Statement of Additional
Information.
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 any contingent deferred
sales charge which are imposed upon certain redemptions at the rates set forth
under "How to Redeem Fund Shares" in the Fund's current Prospectus. A
taxable-equivalent yield is computed by using the tax-exempt yield figure and
dividing by 1 minus a stated rate. For the yield and taxable equivalent yield of
the Fund, see "Performance Information" in the Fund's Part II of this Statement
of Additional Information.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio (the days in a year divided by the accrual days
of the monthly period) used to annualize the most recent monthly distribution
and reinvesting the resulting amount for a full year on the basis of such ratio.
The effective distribution rate will be higher than the distribution rate
because of the compounding effect of the assumed reinvestment. Investor's should
note that the Fund's yield is calculated using a standardized formula, the
income component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month. See "Distributions
and Taxes" in the Fund's current Prospectus. For the Fund's distribution rate
and effective distribution rate, see "Performance Information" in the Fund's
Part II of this Statement of Additional Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and the
Lehman Brothers Municipal Bond Index. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished to
present or prospective shareholders. The Fund's performance may differ from that
of other investors in the Portfolio, including other investment companies.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
From time to time 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.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100, if the annual rates of
inflation during such period were 4%, 5%, 6% and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about portfolio allocation and holdings of
the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's, S&P and Fitch) may be included in
advertisements and other material furnished to present and prospective
shareholders. Such information may be stated as a percentage of the Portfolio's
bond holdings on such date. For an example of the Portfolio's diversification by
quality ratings, see "Performance Information" in the Fund's Part II of this
Statement of Additional Information.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit accounts
and money market mutual funds over various income tax brackets.
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze."
For additional information, charts and illustrations relating to the Fund's
investment performance, see "Performance Information" in the Fund's Part II of
this Statement of Additional Information.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for Federal income
tax purposes. The Fund has elected to be treated, and intends to qualify each
year, as a regulated investment company ("RIC") under the Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Fund intends to satisfy
certain requirements relating to sources of its income and diversification of
its assets and to distribute its net investment income (including tax-exempt
income) and net realized capital gains in accordance with the timing
requirements imposed by the Code, so as to avoid any Federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended August 31, 1995
(see the Notes to the Financial Statements incorporated by reference in this
Statement of Additional Information). Because the Fund invests its assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
Federal income tax. Under current law, provided that the Fund qualifies as a RIC
for Federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular Federal income tax. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under Federal tax legislation
enacted in 1986, the Federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when- issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax exempt interest earned by
the Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under Federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Fund's Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding voting securities of the Fund or on six
months' notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund has authorized the Principal Underwriter to act as its
agent in repurchasing shares at the rate of $2.50 for each repurchase
transaction handled by the Principal Underwriter. The Principal Underwriter
estimates that the expenses incurred by it in acting as repurchase agent for the
Fund will exceed the amounts paid therefor by the Fund. For the amount paid by
the Fund to the Principal Underwriter for acting as repurchase agent, see "Fees
and Expenses" in the Fund's Part II of this Statement of Additional Information.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments made by its corresponding
Portfolio, the expenses of the Fund and of its corresponding Portfolio accrued
and allocated to the Fund on such day, income on portfolio investments of its
corresponding Portfolio accrued and allocated to the Fund on such day, and any
dividends and distributions declared on Fund shares. The Fund does not accrue
possible future payments as a liability of the Fund or reduce the Fund's current
net assets in respect of unknown amounts which may become payable under the Plan
in the future because the standards for accrual of such a liability under
accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and contingent deferred
sales charges theretofore paid or payable to the Principal Underwriter will be
subtracted from such distribution charges; if the result of such subtraction is
positive, a distribution fee (computed at 1% over the prime rate then reported
in The Wall Street Journal) will be computed on such amount and added thereto,
with the resulting sum constituting the amount of outstanding Uncovered
Distribution Charges with respect to such day. The amount of outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of the
Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Marathon Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan.
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal Underwriter
and service fees to the Principal Underwriter and Authorized Firms which may be
equivalent, on an aggregate basis during any fiscal year of the Fund, to .95% of
the Fund's average daily net assets for such year. For the sales commission and
service fee payments made by the Fund and the outstanding Uncovered Distribution
Charges of the Principal Underwriter, see "Fees and Expenses -- Distribution
Plan" in the Fund's Part II of this Statement of Additional Information. The
Fund believes that the combined rate of all these payments may be higher than
the rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the Principal Underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at the
time of sale, it is anticipated that the Eaton Vance organization will profit by
reason of the operation of the Plan through an increase in the Fund's assets
(thereby increasing the advisory fee payable to BMR by the Portfolio) resulting
from sale of Fund shares and through amounts paid to the Principal Underwriter,
including contingent deferred sales charges pursuant to the Plan. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts theretofore received by the Principal
Underwriter pursuant to the Plan and from contingent deferred sales charges have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. Total expenses for this purpose will include an
allocable portion of the overhead costs of such organization and its branch
offices, which costs will include without limitation leasing expense,
depreciation of building and equipment, utilities, communication and postage
expense, compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton Vance
organization in a manner deemed equitable to the Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Trust who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of
the Trustees then in office, and the Distribution Agreement contains a similar
provision. The Plan and Distribution Agreement may be terminated at any time by
a vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund. The provisions of the Plan
relating to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Under the Plan the President
or a Vice President of the Trust shall provide to the Trustees for their review,
and the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which will benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the Principal Underwriter under the
Plan will compensate the Principal Underwriter for its services and expenses in
distributing shares of the Fund. Service fee payments made to the Principal
Underwriter and Authorized Firms under the Plan provide incentives to provide
continuing personal services to investors and the maintenance of shareholder
accounts. By providing incentives to the Principal Underwriter and Authorized
Firms, the Plan is expected to result in the maintenance of, and possible future
growth in, the assets of the Fund. Based on the foregoing and other relevant
factors, the Trustees have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Portfolio from
time to time, it is the opinion of the Trustees of the Trust and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
OTHER INFORMATION
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. The Trust, which is a Massachusetts
business trust established in 1985, was originally called Eaton Vance High Yield
Municipals Trust. The Trust changed its name to Eaton Vance Municipals Trust on
January 7, 1991.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable Federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing.
Registrant incorporates by reference the audited financial information for
the Fund's and Portfolio's for the fiscal year ended August 31, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950135-95-002233).
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS{+}
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F- 1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
- ----------
{+} The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated do
not necessarily represent ratings which would be given to these securities
on the date of the Portfolio's fiscal year end.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON ALABAMA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Connecticut State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Alabama Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Alabama considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Alabama issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Alabama issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Alabama's business cycle is closely related to the national economy, due to
its manufacturing based economy. The State's economy has changed little in the
past few years. Growth in machinery, aerospace and electronic manufacturing have
become increasingly important to the State. The present movement toward
diversification of the State's manufacturing base and a similar trend toward
enlargement and diversification of the service industries are expected to lead
to increased stability. With its strong natural gas and oil deposits, Alabama is
well positioned in energy markets. An important factor affecting the economy is
the State owned Port of Mobile which primarily handles coal exports and serves
as a major Gulf Coast port. The Port of Mobile is one of the nation's busiest
ports in tons of cargo handled.
Although manufacturing remains the largest employment sector, the State
economy has become less dependent on manufacturing. Strong growth in the service
and wholesale/retail trade sectors combined with a weakening manufacturing
sector has enabled the economy to become more diverse. However, its reliance on
the manufacturing sector remains significantly greater than the national
average. In the past several years, the loss of manufacturing jobs has been
primarily as a result of weakness in the durable good sector. Overall,
non-agricultural employment has steadily grown during the past five years.
For March 1994, according to the Bureau of Labor Statistics, the seasonally
adjusted unemployment rate for the State was 6.5% of the labor force, as
compared with an unemployment rate of 6.5% for the United States. As of 1991,
the State's wealth levels were among the lowest in the nation with its per
capita 80.9% of the national average.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $118,486,053. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$466,320 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $373,047 (equivalent to 0.38% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $123,740 (equivalent to 0.31%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, Eaton Vance would have earned, absent a fee reduction, advisory fees of
$18,696 (equivalent to 0.20% (annualized) of the Fund's average daily net assets
for such period). To enhance the net income of the Fund, Eaton Vance made a
reduction of the full amount of its advisory fee.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $335,469 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$788,932, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $328,036
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $4,287,434 (which amount was
equivalent to 3.9% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $147,549, of which $138,284 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $977.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $5,850. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $16,491.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992 to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), and
for the period from the start of business, May 1, 1992, to the fiscal year ended
September 30, 1992, the Fund paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex{F1}:
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $583 $1,563{2} $135,000{4}
Samuel L. Hayes, III ...... 561 1,608{3} 150,000{5}
Norton H. Reamer .......... 550 1,631 135,000
John L. Thorndike ......... 558 1,718 140,000
Jack L. Treynor ........... 602 1,647 140,000
- ----------
{1} The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
{2} Includes $393 of deferred compensation.
{3} Includes $517 of deferred compensation.
{4} Includes $35,000 of deferred compensation.
{5} Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Timothy T. Browse (36) has served as a Vice President of the Portfolio since
June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton Vance since
1993 and an employee of Eaton Vance since 1992. Mr. Browse is an officer of
various investment companies managed by Eaton Vance or BMR. Prior to joining
Eaton Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the 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 May 1, 1992 through August 31, 1995 and
for the one year period ended August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 5/1/92<F1> $1,000 $1,242.75 $1,212,75 24.28% 6.72% 21.28% 5.95
1 Year Ended 8/31/95 8/31/94 $1,000 $1,073.81 $1,023.81 7.38% 7.38% 2.38% 2.38%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
<F1> Investment operations began on May 1, 1992.
<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 distributions, or 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 Fund's current Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.53%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.53% would be 6.91%, assuming a
combined Federal and State tax rate of 34.45%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995 was 4.65% nd the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.75%.
The Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 58.5%
Aa or AA 6.7
A 12.8
Baa or BBB 19.7
Ba or BB --
B --
Below B --
Not rated 2.3
-----
Total 100.0%
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 5.0% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used are the combined
Federal and Alabama state income tax brackets applicable for 1995: 19.25% for
single filers with taxable income up to $23,350 and joint filers up to $39,000;
31.60% for single filers with taxable income from $23,351 to $56,550 and joint
filers from $39,001 to $94,250; 34.45% for single filers with taxable income
from $56,551 to $117,950 and joint filers from $94,251 to $143,601; 39.20% for
single filers with taxable income from $117,951 to $256,500 and joint filers
from $143,601 to $256,500; and 42.62% for single and joint filers with taxable
income over $256,500. The applicable Federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36%, and 39.6%, over the same ranges of
income. The assumed Alabama state income tax rate is 5%. The combined brackets
are not simply the sum of each of the taxes, as they assume that state taxes are
deducted on the Federal income tax return, reducing the effective combined tax
brackets. 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 may be subject to higher combined tax rates than
indicated above. Investors should consult with their tax advisers for additional
information.
<TABLE>
<CAPTION>
TAX BRACKET
19.25% 31.60% 34.45% 39.20% 42.62%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.19 7.31 7.63 8.22 8.71
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.62 2.22 2.13 1.98 1.86
</TABLE>
Marathon Alabama
The Tax Free Yield Advantage
(39.20% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.98% After-tax yield
5.00% Tax free investment
8.22% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,274.00) NONE
After-tax
income: $1,976.00 $5,000.00
The 1995 combined tax bracket takes into account Federal and Alabama state
income taxes. Assuming the deductibility of state taxes on the Federal return,
the bracket is 39.20% 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
(Sources: The Wall Street Journal and Eaton Vance Management). Tax free yields
are shown for illustration purposes only and are not meant to represent actual
results of an investment in the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 15, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 34.63% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person beneficially owns more than 5% of
the Fund's outstanding shares.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Alabama Tax Free Fund to EV Marathon Alabama Tax Free Fund
on February 1, 1994. The Fund changed its name from EV Marathon Alabama Tax Free
Fund to EV Marathon Alabama Municipals Fund on January 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Alabama State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND ALABAMA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- ------------------- AL 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 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 31.60% 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 56,551-$117,950 $ 94,251-$143,600 34.45% 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$117,951-$256,500 $143,601-$256,500 39.20% 6.58 7.40 l 8.22 9.05 9.87 10.69 11.51
Over $256,500 Over $256,500 42.62% 6.97 7.84 8.71 9.59 10.46 11.33 12.20
<FN>
<F1> Net amount subject to Federal and Alabama personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Alabama tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Alabama taxes are itemized Deductions for Federal income tax purposes. Investors who do not itemize
deductions on their Federal Income Tax Return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. 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 Alabama State income taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $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 Marathon Alabama Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and Alabama 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 Alabama personal income taxes. It should also be
noted that the interest earned on certain "private activity" bonds issued after
August 7, 1986, while exempt from the regular Federal income tax, is treated as
a tax preference item which could subject the recipient to the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON ARKANSAS MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Arkansas State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Arkansas Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Arkansas considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Arkansas issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Arkansas issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The Constitution of the State does not limit the amount of general
obligation bonds which may be issued by the State; however, no such bonds may
be issued unless approved by the voters of the State at a general election or
a special election held for that purpose. There is no constitutional
limitation on the aggregate principal amount of revenue bonds that may be
issued by the State and its agencies. All revenue bonds and notes are secured
only by specific revenue streams and neither the general revenues of the State
nor its full faith and credit are pledged to repayment.
Pursuant to the Revenue Stabilization Law, the General Assembly must enact
legislation to provide for an allotment process of funding appropriations in
order to comply with State law prohibiting deficit spending whereby spending
is limited to actual revenues received by the State. The Governor may restrict
spending to a level below the level of appropriations. Pursuant to the
Stabilization Act, the General Assembly establishes five levels of priority
for general revenue spending, levels "A," "B," "B-1," "C" and "C-1".
Successive levels of appropriations are funded only in the event sufficient
revenues have been generated to fully fund any prior level. Accordingly,
appropriations made to programs and agencies are only maximum authorizations
to spend. Actual expenditures are limited to the lesser of (i) moneys flowing
into a program or agency's fund maintained by the Treasurer or (ii) the
maximum appropriation by the General Assembly. Since State revenues are not
collected throughout the year in a pattern consistent with program and agency
expenditures, a budget revolving fund, which receives interest earnings from
State fund investments, has been established and is utilized to assure proper
cash flow during any period. One-half of all moneys deposited into the budget
revolving fund ultimately are utilized to supplement the State's capital
construction program and the balance is distributed to programs and agencies
funded from general revenues.
The State operates under a biennial budgeting system with July 1, 1995
beginning the current biennium. The State ended fiscal 1994 in balance as
required by the Revenue Stabilization Act. Net available general revenue
growth for fiscal 1994 was 9%.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $81,535,002. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$296,231 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $172,691 (equivalent to 0.38%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $88,417. The Portfolio's Investment Advisory Agreement
with BMR is dated February 1, 1994 and remains in effect until February 28,
1996. The Agreement may be continued as described under "Investment Adviser
and Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1994 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1993 to
February 1, 1994, absent a fee reduction, the Fund would have paid Eaton Vance
advisory fees of $71,529 (equivalent to 0.21% (annualized) of the Fund's
average daily net assets for such period). To enhance the net income of the
Fund, Eaton Vance made a reduction of the full amount of its advisory fee. For
the period from the start of business, October 2, 1992 to the fiscal year
ended September 30, 1993, Eaton Vance would have earned, absent a fee
reduction, advisory fees of $57,831 (equivalent to 0.22% (annualized) of the
Fund's average daily net assets for such period). To enhance the net income of
the Fund, Eaton Vance made a reduction of the full amount of its advisory fee
and Eaton Vance was allocated a portion of the expenses related to the
operation of the Fund in the amount of $81,380.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
August 31, 1995, the Principal Underwriter paid sales commissions of $239,454
to Authorized Firms on sales of Fund shares. During the same period, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $602,799, which amount reduced Uncovered Distribution Charges.
During such period contingent deferred sales charges aggregating approximately
$312,000 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August
31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $3,364,000
(which amount was equivalent to 4.2% of the Fund's net assets on such date).
During the fiscal year ended August 31, 1995, the Fund paid service fee
payments under the Plan aggregating $98,771, of which $97,696 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $800 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $6,162. For
the fiscal year ended August 31, 1995, the Portfolio paid IBT $23,999.
BROKERAGE
For the fiscal year ended August 31, 1995, and for the period from the
start of business, February 1, 1994, to the fiscal year ended August 31, 1994,
the Portfolio paid no brokerage commissions on portfolio transactions. For the
period from October 1, 1993 to February 1, 1994 (when the Fund transferred its
assets to the Portfolio), and for the period from the start of business,
October 2, 1992 to the fiscal year ended September 30, 1993, the Fund paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfoio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995, earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex{1}:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- -------------- -------------- --------------------
Donald R. Dwight ....... $333 $1,164{2} $135,000{4}
Samuel L. Hayes, III ... 322 1,222{3} 150,000{5}
Norton H. Reamer ....... 314 1,254 135,000
John L. Thorndike ...... 318 1,336 140,000
Jack L. Treynor ........ 343 1,235 140,000
- ----------
{1} The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
{2} Includes $436 of deferred compensation.
{3} Includes $559 of deferred compensation.
{4} Includes $35,000 of deferred compensation.
{5} Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) has served as a Vice President of the
Portfolio since June 19, 1995. Mr. Browse has been a Vice President of BMR and
Eaton Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse
is an officer of various investment companies managed by Eaton Vance or BMR.
Prior to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader --
Fidelity Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the 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 October 2, 1992 through August 31,
1995 and for the one year period ended August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 10/2/92<F1> $1,000 $1,189.89 $1,149.89 18.99% 6.13% 14.99% 4.90%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,061.54 $1,011.54 6.15% 6.15% 1.15% 1.15%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on October 2, 1992.
<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 distributions, or 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 Fund's current Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.51%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.51% would be 7.03%,
assuming a combined federal and State tax rate of 35.83%.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 15, 1995) was 4.68%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.79%.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------- -----------
Aaa or AAA 37.4%
Aa or AA 11.4
XA 30.2
Baa or BBB 15.4
Ba or BB --
B --
Below B --
Not rated 5.6
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in
the Fund yielding a hypothetical 5% with the after-tax yield of a certificate
of deposit yielding 3.25%. The tax brackets used are the combined federal and
Arkansas income tax brackets applicable for 1995: 20.95% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 33.04% for
single filers with taxable income from $23,351 to $56,550 and joint filers
from $39,001 to $94,250; 35.83% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600; 40.48% for
single filers with taxable income from $117,951 to $256,500 and joint filers
from $143,601 to $256,500; and 43.83% for single and joint filers with taxable
income over $256,500. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of
income. The assumed Arkansas State income tax rate is 7%. The combined
brackets are not simply the sum of each of the taxes, as they assume that
State taxes are deducted on the federal income tax return, reducing the
effective combined tax brackets. These brackets do not take into account the
phaseout of personal exemptions and limitation on deductibility of itemized
deductions over certain ranges of income. Investors who do not itemize or who
are subject to such phaseout or limitation will have a higher combined tax
bracket than indicated above. Investors should consult with their tax adviser
for additional information. These illustrations are not meant to imply any
future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.95% 33.04% 35.83% 40.48% 43.83%
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield .............................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent .......................... 6.33 7.47 7.79 8.40 8.90
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.57 2.18 2.09 1.93 1.83
</TABLE>
Marathon Arkansas
The Tax Free Yield Advantage
(40.48% combined tax bracket)
3.25% Certificate of Deposit
3.25% Pretax yield
1.93% After-tax yield
5.00% Tax free investment
8.40% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income $3,250.00 $5,000.00
Tax: (1,315.60) NONE
After-tax
income: $1,934.40 $5,000.00
The 1995 combined tax bracket takes into account federal and Arkansas
State income taxes. Assuming the deductibility of State taxes on the federal
return, the bracket is 40.48% 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 represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 12.3% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. To the knowledge of the Trust, no other person owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Arkansas Tax Free Fund to EV Marathon
Arkansas Tax Free Fund on February 1, 1994 and to EV Marathon Arkansas
Municipals Fund on January 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and Arkansas State income tax laws and tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND ARKANSAS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- ------------------- AR 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 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551 - $117,950 $ 94,251 - $143,600 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$117,951 - $256,500 $143,601 - $256,500 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over - $256,500 Over - $256,500 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
<FN>
<F1> Net amount subject to federal and Arkansas personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Arkansas tax rate within the bracket. Taxpayers with
taxable income within this bracket may have a lower combined bracket and taxable equivalent yield than
indicated above. The combined tax rates assume that Arkansas taxes are itemized deductions for federal income
tax purposes. Investors who do not itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated above. 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 Arkansas 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 Arkansas Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Arkansas 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 Arkansas personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal
income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax. The illustrations assume
that the federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON GEORGIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Georgia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Georgia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Georgia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Georgia issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Georgia issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The Georgia Constitution provides that the State may incur public debt of
two types for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred to acquire, construct,
develop, extend, enlarge or improve land, waters, property, highways,
buildings, structures, equipment or facilities of the State, its agencies,
departments, institutions and certain State authorities, to provide
educational facilities for county and independent school systems, to provide
public library facilities for county and independent school systems, counties,
municipalities, and boards of trustees of public libraries or boards of
trustees of public library systems, to make loans to counties, municipal
corporations, political subdivisions, local authorities and other local
government entities for water or sewerage facilities or systems, and to make
loans to local government entities for regional or multijurisdictional solid
waste recycling or solid waste facilities or systems. No general obligation
debt may be incurred, however, when the highest aggregate annual debt service
requirements for the then current year or any subsequent year for outstanding
general obligation debt and guaranteed revenue debt, including any proposed
debt, and the highest aggregate annual payments for the then current year or
any subsequent fiscal year of the State under certain State contracts, exceed
ten percent of the total revenue receipts, less refunds, of the State Treasury
in the fiscal year immediately preceding the year in which the debt is to be
incurred. In addition, no general obligation debt may be incurred with a term
in excess of twenty-five years.
Guaranteed revenue debt may be incurred by guaranteeing the payment of
certain revenue obligations issued by an instrumentality of the State. No
guaranteed revenue debt may be incurred to finance water or sewage treatment
facilities or systems when the highest aggregate annual debt service
requirements for the then current year or any subsequent fiscal year of the
State for outstanding or proposed guaranteed revenue debt for water or
sewerage facilities or systems exceed one percent of the total revenue
receipts, less refunds, of the State Treasury in the fiscal year immediately
preceding the year in which any debt is to be incurred. In addition, the
aggregate amounts of guaranteed revenue debt incurred to make loans for
educational purposes may not exceed $18 million, and the aggregate guaranteed
revenue debt incurred to purchase, or to lend or deposit against the security
of, loans for educational purposes that may be outstanding may not exceed $72
million.
As of July 31, 1995, the State's outstanding general obligation debt was
$4,279,170,000. The State had outstanding at July 31, 1995, $185,135,000 of
guaranteed revenue debt.
In addition to the State's general obligation debt and guaranteed revenue
debt, the State had outstanding at June 30, 1995, $1,030,000 in revenue bonds
and notes issued by various State agencies, authorities and institutions of
higher education.
In the 1995 Legislative Session, the General Assembly authorized the
issuance of $530,500,000 in aggregate principal amount of general obligation
bonds for fiscal year 1996, the proceeds of which are to be used for various
planned capital projects of the State, its departments and agencies.
The Georgia Constitution also permits the State to incur public debt to
supply a temporary deficit in the State Treasury in any fiscal year created by
a delay in collecting the taxes of that year. Such debt must not exceed, in
the aggregate, 5% of the total revenue receipts, less refunds, of the State
Treasury in the fiscal year immediately preceding the year in which such debt
is incurred. The debt incurred must be repaid on or before the last day of
the fiscal year in which it is to be incurred out of the taxes levied for that
fiscal year. No such debt may be incurred in any fiscal year if there is then
outstanding unpaid debt from any previous fiscal year which was incurred to
supply a temporary deficit in the State Treasury. No such debt has been
incurred under this provision since its inception.
Virtually all of the issues of long-term debt obligations issued by or on
behalf of the State of Georgia and counties, municipalities and other
political subdivisions and public authorities thereof are required by law to
be validated and confirmed in a judicial proceeding prior to issuance. The
legal effect of a validation in Georgia is to tender incontestable the
validity of the pertinent bond issue and the security therefor.
Tax collections of the State for fiscal year 1994 were 7.8% over tax
collections for fiscal year 1993. Corporate and individual income tax
receipts and general sales tax receipts of the State for fiscal year 1994
comprised an estimated 49.0% and 40.2%, respectively, of the total State tax
revenues. Revenues from sales and income taxes increased 9.2% and 6.7%,
respectively, during fiscal year 1994, and 8.3% and 9.1%, respectively, during
fiscal year 1995.
On December 6, 1994, the United States Supreme Court reversed the Georgia
Supreme Court's decision in Reich v. Collins which had determined that the
plaintiff federal retiree was not entitled to a refund of taxes paid on
federal retirement pension benefits for tax years before 1989. The plaintiff
had sought refunds under the United States Supreme Court's decision in Davis
v. Michigan Department of Treasury. On February 1, 1995, the Governor signed
H.B. 90 into law, which provides for the payment of refunds to federal
retirees who timely filed claims for any of the tax years 1985 through 1988,
inclusive. The total amount payable is estimated at approximately $110
million, to be paid in four roughly equal annual installments beginning on or
before October 15, 1995. Based on this legislation, Reich has been dismissed.
Three suits have been filed against the State of Georgia seeking refunds
of liquor taxes in light of Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)
under Georgia's pre-Bacchus statute. In James B. Beam Distilling Co. v.
State, 501 U.S. 529 (1991), the Supreme Court indicated that Bacchus was
retroactive, but only within the bounds of State statutes of limitations and
procedural bars, and left State courts to determine any remedy in light of
reliance interests, equitable considerations, and other defenses. Georgia's
statute of limitations has run on all pre-Bacchus claims for refund except
five pending claims seeking $31.7 million in tax plus interest. On remand,
the Fulton County Superior Court ruled that procedural bars and other defenses
bar any recovery by taxpayers on Beam's claims for refund. The Georgia
Supreme Court affirmed, and Beam's petition to the United States Supreme Court
for a writ of certiorari was denied. Thus, the Beam case is now concluded.
The State has filed a motion for summary judgment, based upon Beam, in the
remaining two suits for refund, i.e., Joseph E. Seagram & Sons, Inc. v. State
and Heublein, Inc. v. State, in DeKalb County Superior Court.
Three suits (two for refund and one for declaratory and injunctive relief)
have been filed with the State of Georgia by foreign producers of alcoholic
beverages. The first suit seeks $96 million in refunds of alcohol import taxes
imposed under Georgia's post-Bacchus statute. These claims constitute 99% of
all such taxes paid during the three years preceding these claims. In
addition, the claimants have filed a second suit for refund of an additional
$23 million for apparently later time periods. These two cases encompass all
known or anticipated claims for refund of such type within the apparent
statute of limitations. The two refund cases are still pending in the trial
court. The declaration/injunctive relief case was dismissed by the District
Court and was affirmed by the Eleventh Circuit Court of Appeals. The
claimants have filed a petition for rehearing which is pending.
A suit has also been filed based on a local school board's claim that the
State finance the major portion of the costs of its desegregation program.
The Savannah Board originally requested restitution in the amount of $30
million, but the Federal District Court set forth a formula which would
require a State payment in the amount of approximately $8,900,000. The
plaintiffs, dissatisfied with the apportionment of desegregation costs between
State and county, and an adverse ruling on the State funding formula for
transportation costs, have appealed to the Eleventh Circuit Court of Appeals.
The State has filed a responsive cross-appeal on the ground that there is no
basis for any liability. Subsequently, the parties agreed to a settlement,
which has been submitted to the Court for approval. The proposed settlement
calls for the State to pay the amount awarded to the plaintiffs and to offer
an option regarding future funding methodology for pupil transportation.
Because interest was accruing in the settlement, in March 1995, the State paid
to the plaintiffs $8,925,000 in partial satisfaction of the settlement
agreement.
A similar complaint has been filed by DeKalb County and seeking
approximately $67,500,000 in restitution. The federal District Court ruled
that the State's funding formula for pupil transportation (which the District
Court in the Savannah case upheld) was contrary to State law. This ruling
would require a State payment of a State law funding entitlement in the amount
of approximately $34,000,000 computed through June 30, 1994. Motions to
reconsider and amend the Court's judgment were filed by both parties. The
State's motion was granted, in part, which reduced the required State payment
to approximately $28,000,000. Notices of appeal to the Eleventh Circuit Court
of Appeals have been filed. There are approximately five other school
districts which might file similar claims.
Another suit has been filed in federal district and State superior courts
challenging the constitutionality of Georgia's transfer fee (often referred to
as "impact fee") by asserting that the fee violates the commerce clause, due
process, equal protection and privilege and immunities provisions of the
constitution. The plaintiff seeks to prohibit the State from further
collections and to require the State to return to her and those similarly
situated all fees previously collected. A similar lawsuit previously filed in
another State superior court has been voluntarily dismissed and will likely be
joined with this action. From May of 1992 to June 1995, the State has
collected $24,168,203. All amounts collected after June 7, 1995 are being
paid into an escrow account. The State continues to collect approximately
$500,000 to $600,000 per month.
On September 1, 1994, a civil action was filed in the Fulton County
Superior Court on behalf of all certain employees of the State of Georgia who
were subjected to a freeze in pay between 1992 and 1995. The State believes
that it has good and adequate defenses to the claims made, but, should the
plaintiffs prevail in every aspect of their claims, the liability of the State
in this matter could be as much as $295,000,000, based on best estimates
currently available.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $122,948,667. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$521,159 (equivalent to 0.41% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $496,637 (equivalent to 0.40% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to September 30, 1993, the
Portfolio paid BMR advisory fees of $228,627 (equivalent to 0.37% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains
in effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, the Fund paid Eaton Vance advisory fees of $50,274
(equivalent to 0.29% (annualized) of the Fund's average daily net assets for
such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
August 31, 1995, the Principal Underwriter paid sales commissions of $263,171
to Authorized Firms on sales of Fund shares. During the same period, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $931,910, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $827,185 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
August 31, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$4,634,000 (which amount was equivalent to 3.8% of the Fund's net assets on
such date). During the fiscal year ended August 31, 1995, the Fund paid
service fee payments under the Plan aggregating $178,805, of which $169,986
was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,887.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $500. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992 to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), and
for the period from the start of business, December 23, 1991, to the fiscal
year ended September 30, 1992, the Fund paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995, earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex{F1}:
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $666 $1,563{2} $135,000{4}
Samuel L. Hayes, III ...... 643 1,608{3} 150,000{5}
Norton H. Reamer .......... 628 1,631 135,000
John L. Thorndike ......... 637 1,718 140,000
Jack L. Treynor ........... 686 1,647 140,000
- ----------
{1} The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
{2} Includes $393 of deferred compensation.
{3} Includes $517 of deferred compensation.
{4} Includes $35,000 of deferred compensation.
{5} Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, David C. Reilly (38) is a Vice President of the Portfolio. Mr.
Reilly has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Reilly has been a Vice President of BMR since 1992 and Eaton Vance since
1991, and is an officer of various investment companies managed by Eaton Vance
or BMR. Prior to joining Eaton Vance, Mr. Reilly was a Vice President and a
municipal bond analyst at Scudder, Stevens & Clark (1984-1991).
PERFORMANCE 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 23, 1991 through August
31, 1995 and for the one year period ended August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 12/23/91<F1> $1,000 $1,199.33 $1,169.96 19.93% 5.05% 17.00% 4.35%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,049.02 $ 999.07 4.90% 4.90% -0.09% -0.09%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on December 23, 1991.
<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 distributions, or 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 Fund's current Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.74%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.74% would be 7.31%,
assuming a combined Federal and State tax rate of 35.14%.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 15, 1995) was 4.65%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.75%.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 30.4%
Aa or AA 34.1
A 24.9
Baa or BBB 6.6
Ba or BB 0.4
B --
Below B --
Not rated 3.6
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.0% 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 Georgia income tax brackets applicable for 1995:
20.10% for single filers with taxable income up to $23,350 and joint filers up
to $39,000; 32.32% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 35.14% for single filers
with taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 39.84% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 43.22% for single and
joint filers with taxable income over $256,500. The applicable Federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%,
over the same ranges of income. Tax brackets are calculated using the highest
state rate within each bracket. These brackets assume that Georgia taxes are
deducted on the Federal income tax return, and do not take into account the
phaseout of personal exemptions and limitation on deductibility of itemized
deductions over certain ranges of income, which increase the effective top
Federal tax rate for certain taxpayers. Investors should consult with their
tax advisers for additional information. This illustration is not meant to
imply or predict any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.10% 32.32% 35.14% 39.84% 43.22%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.26 7.39 7.71 8.31 8.81
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.60 2.20 2.11 1.96 1.85
</TABLE>
Marathon Georgia
The Tax Free Yield Advantage
(39.84% combined tax bracket)
3.25% Certificate of deposit
1.96% After-tax yield
5.00% Tax free investment
8.31% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments:
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,294.80) NONE
After-tax
income: $1,955.20 $5,000.00
The 1995 combined tax bracket takes into account Federal and Georgia State
income taxes. Assuming the deductibility of Georgia taxes on the Federal
return, the bracket is 39.84% 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 (Sources: The Wall Street Journal and Eaton Vance
Management). Tax free yields are shown for illustration purposes only and are
not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 15, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 21.43% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. To the knowledge of the Trust, no other person
beneficially owns more than 5% of the Fund's outstanding shares.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Georgia Tax Free Fund to EV Marathon Georgia
Tax Free Fund on February 1, 1994. The Fund changed its name from EV Marathon
Georgia Tax Free Fund to EV Marathon Georgia Municipals Fund on January 1,
1996.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and Georgia State income tax laws and tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND GEORGIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- ------------------- GA 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 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950$ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500$143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to Federal and Georgia personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Georgia tax rate within the bracket. Taxpayers with taxable income within
this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax rates assume
that Georgia taxes are Itemized Deductions for Federal income tax purposes. Investors who do not itemize deductions on their
Federal Income Tax Return will have a higher combined bracket and higher taxable equivalent yield than those indicated above.
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 Georgia 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 Georgia Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and Georgia 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 Georgia personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular Federal
income tax, is treated as a tax preference item which could subject the
recipient to the Federal alternative minimum tax. The illustrations assume
that the Federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON KENTUCKY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Kentucky State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Kentucky Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Kentucky considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Kentucky issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Kentucky issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Because the Kentucky Constitution requires the vote of a majority of the
state's electorate to approve the issuance of state general obligation
indebtedness and requires the vote of two-thirds of a municipality's
electorate to approve the issuance of general obligation indebtedness by any
city, county, or other municipality within the state, most Kentucky state and
local government indebtedness is issued not as general obligation indebtedness
but as either debt payable only from revenues produced by the particular
project or as indebtedness subject to biennial, in the case of the state, or
annual, in the case of a local government, legislative appropriation for the
payment of debt service. Such appropriation-backed indebtedness is customarily
issued in the form of lease revenue bonds by a public authority or public
holding company which uses the proceeds of the bonds to finance the particular
public project and leases the project to the state or local government
pursuant to a lease renewable each fiscal biennium (in the case of the state)
or each fiscal year (in the case of a local government). Failure of the lessee
government to renew the lease would terminate the lessee's obligation to make
further rental payments and would leave the bondholders with recourse only
against the property which was subject to the lease and any other security
pledged for the payment of the bonds. An amendment to the state constitution
approved by the electorate at the November 1994 general election authorizes
the Kentucky General Assembly to enact legislation permitting local
governments to issue general obligation indebtedness without voter approval
but subject to prescribed limitations on the maximum amount of indebtedness
that may be incurred based on the assessed value of the taxable property
within the municipality and such additional limitations and conditions as may
be prescribed by statute. The Kentucky General Assembly has not yet enacted
any such enabling legislation and, therefore, appropriation-backed
indebtedness continues to be the prevailing form of financing for local
governments in Kentucky.
The Commonwealth of Kentucky recently retired the last of its outstanding
general obligation debt. In September 1994 S&P upgraded the rating of the
State's appropriation-back debt from A to A. Moody's and Fitch rate the
State's appropriation-backed debt as A and A, respectively.
Kentucky is an "average" state in terms of size and in terms of its
proportion of the national economy. Kentucky has 1.5% of total U.S.
population, 1.2% of total U.S. personal income, and 1.3% of total U.S.
nonagricultural employment. However, during the latter part of the 1980's and
throughout the 1990's, Kentucky's economy has outperformed the national
average. During 1994 the unemployment rate in Kentucky averaged 5.4% as
compared to the national average of 6.1%; nonagricultural employment in
Kentucky grew 3.3% as compared to a national growth rate of 2.6%; and personal
income in Kentucky grew 6.0% compared to a natonal growth rate of 5.3%.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last three years. State General Fund revenue grew by 10.9% in
fiscal year 1995 to a total of $5.15 billion. To avoid the need for state
budget cuts in the event revenues do not meet expectations, a Budget Reserve
Trust Fund was established with a $90 million deposit in fiscal year 1994. An
additional $10 million was deposited into the Budget Reserve Trust Fund on in
fiscal year 1995, bringing the balance to the targeted level of $100 million.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $145,268,626. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$595,483 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $510,287 (equivalent to 0.41% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $224,010
(equivalent to 0.37% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, Eaton Vance earned advisory fees of $55,896 (equivalent to
0.30% (annualized) of the Fund's average daily net assets for such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
August 31, 1995, the Principal Underwriter paid sales commissions of $408,380
to Authorized Firms on sales of Fund shares. During the same period, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $1,048,842, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $466,267 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
August 31, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$5,401,123 (which amount was equivalent to 3.8% of the Fund's net assets on
such date). During the fiscal year ended August 31, 1995, the Fund paid
service fee payments under the Plan aggregating $201,042, of which $189,160
was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,207.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $10,430. For
the fiscal year ended August 31, 1995, the Portfolio paid IBT $35,132.
BROKERAGE
For fiscal year ended August 31, 1995, the eleven months ended August 31,
1994, and for the period from the start of business, February 1, 1993, to the
fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), and
for the period from the start of business, December 23, 1991, to the fiscal
year ended September 30, 1992, the Fund paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995, earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex{F1}:
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $660 $1,563{2} $135,000{4}
Samuel L. Hayes, III ...... 643 1,608{3} 150,000{5}
Norton H. Reamer .......... 628 1,631 135,000
John L. Thorndike ......... 637 1,718 140,000
Jack L. Treynor ........... 686 1,647 140,000
- ----------
{1} The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
{2} Includes $393 of deferred compensation.
{3} Includes $517 of deferred compensation.
{4} Includes $35,000 of deferred compensation.
{5} Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) has served as a Vice President of the
Portfolio since June 19, 1995. Mr. Browse has been a Vice President of BMR and
Eaton Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse
is an officer of various investment companies managed by Eaton Vance or BMR.
Prior to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader --
Fidelity Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the 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 23, 1991 through August
31, 1995 and for the one year period ended August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 12/23/91<F1> $1,000 $1,222.96 $1,192.99 22.30% 5.61% 19.30% 4.90%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,066.13 $1,016.13 6.61% 6.61% 1.61% 1.61%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on December 23, 1991.
<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 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 Fund's current Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.58%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.58% would be 7.06%,
assuming a combined Federal and State tax rate of 35.14%.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 15, 1995) was 4.70%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.81%.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 37.3%
Aa or AA 13.6
A 31.2
Baa or BBB 13.4
Ba or BB 3.3
B --
Below B --
Not rated 1.2
-----
Total 100.0%
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 5.0% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used are the combined
tax brackets applicable to a Kentucky resident subject to Federal and Kentucky
state income taxes and Kentucky intangibles taxes on mutual fund shares
yielding 5.0%. These combined tax brackets, which are based on 1995 tax rates,
are 23.96% for single filers with taxable income up to $23,350 and joint
filers up to $39,000; 35.59% for single filers with taxable income from
$23,351 to $56,550 and joint filers from $39,001 to $94,250; 38.28% for single
filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 42.75% for single filers with taxable income from
$117,951 to $256,500 and joint filers from $143,601 to $256,500; and 45.97%
for single and joint filers with taxable income over $256,500. The applicable
Federal tax rates within each of these combined brackets are 15%, 28%, 31%,
36% and 39.6%, over the same ranges of income. The Kentucky state income tax
rate is 6%, and the intangibles tax as a percentage of income is 4.55%. The
combined brackets are not simply the sum of each of the three taxes, as they
assume that state taxes are deducted on the Federal income tax return,
reducing the effective combined tax brackets. The combined tax brackets used
in calculating the after-tax certificate of deposit yields are 20.12%, 32.33%,
35.15%, 39.85% and 43.23% over the same ranges of income. These brackets
reflect the .001% intangibles tax rate applicable to certificates of deposit.
Investors should consult with their tax advisers for additional information.
<TABLE>
<CAPTION>
TAX BRACKET
24.35% 35.92% 38.59% 43.04% 46.09%
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ....................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................... 6.61 7.80 8.14 8.78 9.28
TAX BRACKET
20.10% 32.32% 35.14% 39.84% 43.22%
-----------------------------------------------------------------------
Certificates of deposit:
Yield ............................................ 3.25 3.25 3.25 3.25 3.25
After-tax yield .................................. 2.60 2.20 2.11 1.95 1.85
</TABLE>
Marathon Kentucky
The Tax Free Yield Advantage
(43.04% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.95% After-tax yield
5.00% Tax free investment
8.78% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,295.12) NONE
After-tax
income: $1,954.88 $5,000.00
The 1995 combined tax bracket takes into account Federal and Kentucky state
income taxes as well as the Kentucky intangibles tax. 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. Chart is based on 3-month bank CDs (Source: The
Wall Street Journal and Eaton Vance Management). Individuals pay a lesser
Kentucky intangibles tax on bank CDs. Accordingly, the combined tax bracket
applicable to the after-tax CD yield is 39.84%. Tax free yields are shown for
illustration purposes only and are not meant to represent actual results of an
investment in the Fund. See your financial adviser for the Fund's current
yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 15, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 15.90% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. To the knowledge of the Trust, no other person
beneficially owns more than 5% of the Fund's outstanding shares.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Kentucky Tax Free Fund to EV Marathon
Kentucky Tax Free Fund on February 1, 1994. The Fund changed its name from EV
Marathon Kentucky Tax Free Fund to EV Marathon Kentucky Municipals Fund on
January 1, 1996.
TAX EQUIVALENT YIELD TABLE
The tables below show the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and Kentucky State income tax laws, and intangibles tax laws and tax rates
applicable for 1995 It gives the approximate yield a taxable security must
earn at various income brackets to produce after-tax yields equivalent to
those of tax exempt bonds yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND KENTUCKY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- ------------------- KY 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 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<CAPTION>
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------- ----------------------------------------------------------------------
(TAXABLE INCOME*) TAXABLE EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX<F3>:
- ----------------------------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 5.36% 5.99% 6.61% 7.23% 7.86% 8.48% 9.11%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 6.33 7.07 7.80 8.54 9.28 10.01 10.75
$ 56,551 - $117,950 $ 94,251 - $143,600 6.61 7.37 8.14 8.91 9.68 10.45 11.22
$117,951 - $256,500 $143,601 - $256,500 7.12 7.95 8.78 9.61 10.44 11.27 12.10
Over $256,500 Over $256,500 7.55 8.42 9.30 10.18 11.06 11.94 12.82
<FN>
<F1> Net amount subject to Federal and Kentucky personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Kentucky tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Kentucky taxes are Itemized Deductions for Federal income tax purposes. Investors who do not itemize
deductions on their Federal Income Tax Return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
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 Kentucky 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.
<F3> The Kentucky intangibles tax on stocks, bonds, notes and other evidences of debt is 25 cents on every $100 of the value
thereof. An example of the effect of the Kentucky intangibles tax on the combined tax brackets of taxpayers is as follows:
A $10,000 investment subject to the tax would require payment of $25 annually in intangibles taxes. If the investment yielded
5.5% annually or $550, the intangibles tax as a percentage of income would be $25/$550 or 4.55%. If a taxpayer owning such an
investment were in the 6% state income tax bracket, he or she would be paying combined state taxes as a percentage of income
of 6% plus 4.55% or 10.55%. Assuming the deductibility of these taxes as Itemized Deductions and that such taxpayer were in
the 36% Federal income tax bracket, the taxpayer would then be in a 42.75% [36% + (1 - .36) X 10.55%] combined tax bracket
with respect to such investment. This is higher than the 39.84% combined tax bracket without taking into account the
intangibles tax.
</TABLE>
Of course, no assurance can be given that EV Marathon Kentucky Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and Kentucky 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 Kentucky personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular Federal
income tax, is treated as a tax preference item which could subject the
recipient to the Federal alternative minimum tax. The illustrations assume
that the Federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
The Part II provides information about EV MARATHON LOUISIANA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Louisiana State individual and corporate
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Louisiana Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Louisiana considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Louisiana issuers. Such information supplements the information
in the Prospectus, it is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Louisiana issuers. Neither the Trust nor the Portfolio has independently
verified this information.
In 1991, the Louisiana Legislature enacted the Louisiana Riverboat
Economic Development and Gaming Control Act ("Act 753") to assist the growth
of tourism by the development of a riverboat industry in the State authorized
to operate regulated gaming activities. Act 753 designates certain rivers and
waterways in the State upon which riverboat gaming may be conducted and
provides for the creation of a gaming commission known as the Riverboat Gaming
Commission (the "Riverboat Commission"), and for the creation of the Riverboat
Gaming Enforcement Division (the "Enforcement Division"). The Enforcement
Division is responsible for investigation of license and permit applications.
The Riverboat Commission has the responsibility of licensing, regulating and
inspecting riverboat gaming facilities and enforcing Act 753 and regulations
promulgated thereunder. Act 753 allows the issuance of up to fifteen licenses
to conduct gaming activities on riverboats of new construction (built after
January 1, 1992); provided that no more than six licenses may be granted for
the operation of riverboat gaming in any one parish. As of November 1994 there
were 9 riverboats in operation in Louisiana, including two riverboats in
Orleans Parish, two riverboats in other parts of the New Orleans metropolitan
area, one in Baton Rouge, one in Lake Charles, and three in Shreveport/Bossier
City. An additional six riverboats are planned, including three expected to be
located in Orleans Parish and two expected to be located in other parts of the
New Orleans metropolitan area. Act 753 imposes annual license fees for gaming
employee, manufacture, supplies and other permits. In addition, there is a
license fee equal to 3.5% of net gaming proceeds and a franchise fee equal to
15% of net gaming proceeds. Of the 3.5% fee, up to 0.5% can be used to meet
the expenses of the Riverboat Gaming Commission; the remainder of the 3.5%
shall be used by the Enforcement Division to meet its regular, administrative,
investigative and enforcement expenses. The 15% franchise fees are to be
deposited to the credit of the State General Fund. The official forecast for
riverboat gaming revenues is $30 million for fiscal year 1993-94 and $50
million for fiscal year 1994-95.
For fiscal 1996, the State failed to receive a Section 1115 waiver from
the U.S. Department of Health and Human Services resulting in a significant
reduction of federal funding for its health care programs. As a result, the
State faces a large operating gap for its fiscal 1996 budget. At this time, it
is uncertain as to how the State plans to close the fiscal gap and how it will
affect the creditworthiness of State obligations and related debt.
In 1991, the Louisiana Legislature enacted the Video Draw Poker Devices
Control Law (the "Act 1062") for the purpose of regulating and licensing the
use and operation of video draw poker devices through the video gaming
division (the "Video Division") of the gaming enforcement section of the
office of the State police. Act 1062 imposes annual license fees and a
franchise payment equal to 22.5% of the net device revenue derived from the
operation of each device. The forecast of Video Draw Poker gaming revenue is
$100 million for fiscal year 1994-1995.
In 1992, Act 384 of the Louisiana Legislature created the Louisiana
Economic Development and Gaming Corporation (the "LEDGC") for the purpose of
contracting with a casino operator to provide for or furnish an official
gaming establishment and to conduct casino gaming operations at the official
gaming establishment (the "Permanent Casino"). Act 384 directs that the
Permanent Casino be located on the site of the Rivergate Convention Center in
New Orleans. The LEDGC has entered into a contract ("Contract") with Harrah's
Jazz Company ("Company"), a general partnership owned equally by Harrah's New
Orleans Investment Company, New Orleans/Louisiana Development Corporation and
Grand Palais Casino Inc. Pursuant to the Contract, the Company will be allowed
to operate a Temporary Casino until the opening of the Permanent Casino.
Pursuant to the Contract, the Company will be required to pay an amount equal
to 25% of its gross gaming revenue to the LEDGC during operation of the
Temporary Casino. Upon the opening of the Permanent Casino, the Company will
be required to make a payment to the LEDGC in an amount equal to the greater
of $100 million and an amount that is between 19% and 25% of the gross gaming
revenues of the Company. Each quarter, the LEDGC must transfer to the State
Treasury for deposit in the Casino Gaming Proceeds Fund net revenues which are
surplus to its needs. Such revenues will be first credited to the Bond
Security and Redemption Fund before being credited to the Casino Gaming
Proceeds Fund. Monies in the Casino Gaming Proceeds Fund may be allocated or
expended only pursuant to legislative appropriation. The Temporary Casino is
currently expected to open by the end of the first quarter of 1995, and the
Permanent Casino is currently expected to open by the end of the first quarter
of 1996.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $34,308,679. For
the fiscal year ended August 31, 1995, the Portfolio would have paid BMR
advisory fees of $73,471 (equivalent to 0.23% of the Portfolio's average daily
net assets for such period). To enhance the net income of the Portfolio, BMR
made a reduction of its fee in the amount of $36,188. For the period from the
Portfolio's start of business, February 1, 1994, to the fiscal year ended
August 31, 1994, absent a fee reduction, the Portfolio would have paid BMR
advisory fees of $34,790 (equivalent to 0.21% (annualized) of the Portfolio's
average daily net assets for such period). To enhance the net income of the
Portfolio, BMR made a reduction of its fee in the amount of $31,760. The
Portfolio's Investment Advisory Agreement with BMR is dated February 1, 1994
and remains in effect until February 28, 1995. The Agreement may be continued
as described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to the close of business, January 31, 1994 (when the Fund
transferred its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Eaton Vance as its investment adviser. For the
period from October 1, 1993 to February 1, 1994, absent a fee reduction, the
Fund would have paid Eaton Vance advisory fees of $11,096 (equivalent to 0.15%
(annualized) of the Fund's average daily net assets for such period). To
enhance the net income of the Fund, Eaton Vance made a reduction of the full
amount of its advisory fee and $40,252 of expenses related to the operation of
the Fund were allocated to Eaton Vance. For the period from the start of
business, October 2, 1992, to September 30, 1993, Eaton Vance would have
earned, absent a fee reduction, advisory fees of $10,805 (equivalent to 0.15%
(annualized) of the Fund's average daily net assets for such period). To
enhance the net income of the Fund, Eaton Vance made a reduction of the full
amount of its advisory fee and $38,076 of expenses related to the operation of
the Fund were allocated to Eaton Vance.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, including the Rule 12b-1 Trustees, as required by Rule
12b-1. During the fiscal year ended August 31, 1995, the Principal Underwriter
paid sales commissions of $180,626 to Authorized Firms on sales of Fund
shares. During the same period, the Fund made sales commission payments under
the Plan to the Principal Underwriter aggregating $224,688, which amount
reduced Uncovered Distribution Charges. During such period, contingent
deferred sales charges aggregating approximately $78,000 were imposed on early
redeeming shareholders and paid to the Principal Underwriter to reduce
Uncovered Distribution Charges. As at August 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Plan amounted to approximately $1,388,000 (which amount was equivalent to
4.4% of the Fund's net assets on such day). During the fiscal year ended
August 31, 1995, the Fund paid service fee payments under the Plan aggregating
$32,418, of which $32,287 was paid to Authorized Firms and the balance of
which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $290.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $1,016. For
the fiscal year ended August 31, 1995, the Portfolio paid IBT $975.
BROKERAGE
For the fiscal year ended August 31, 1995 and for the period from the
start of business, February 1, 1994, to the fiscal year ended August 31, 1994,
the Portfolio paid no brokerage commissions on portfolio transactions. For the
period from October 1, 1993, to February 1, 1994 (when the Fund transferred
its assets to the Portfolio), and for the period from the start of business
October 2, 1992, to September 30, 1993, the Fund paid no brokerage commissions
on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995 earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex(F1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $33 $333(2) $135,000(4)
Samuel L. Hayes, III ...... 32 323(3) 150,000(5)
Norton H. Reamer .......... 31 314 135,000
John L. Thorndike ......... 32 318 140,000
Jack L. Treynor ........... 34 343 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $83 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Nicole Anderes (34) is a Vice President of the Portfolio. Ms.
Anderes has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Anderes has been a Vice President of BMR and Eaton Vance since 1994, and
is an officer of various investment companies managed by Eaton Vance or BMR.
Prior to joining Eaton Vance, Ms. Anderes was Vice President and portfolio
manager, Lazard Freres Asset Management (1992-1994) and Vice President and
Manager -- Municipal Research, Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the 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 October 2, 1992 through August 31,
1995 and for the one year period ended August 31, 1995.
<PAGE>
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 10/2/91<F1> $1,000 $1,175.86 $1,135.94 17.59% 5.70% 13.59% 4.46%
1 Year Ended 8/31/95<F3> 8/31/94 $1,000 $1,050.78 $1,000.93 5.08% 5.08% 0.09% 0.09%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on October 2, 1992.
<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 distributions or 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 Fund's current Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
5.11%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 5.11% would be 7.88%,
assuming a combined federal and State tax rate of 35.14%. If a portion of the
Portfolio's expenses had not been allocated to the Investment Adviser, the
Fund would have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 15, 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%. If a portion of the Portfolio's
expenses had not been allocated to the Investment Adviser, the Fund would have
had a lower distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 73.4%
Aa or AA 3.1
A 14.7
Baa or BBB 6.1
Ba or BB --
B --
Below B --
Not rated 2.7
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in
the Fund yielding a hypothetical 5.0% with the after-tax yield of a
certificate of deposit yielding a hypothetical 3.25%. The tax brackets used
are the combined federal and Louisiana tax brackets applicable for 1995:
18.40% for single filers with taxable income up to $23,350 and joint filers up
to $39,000; 32.32% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 35.14% for single filers
with taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 39.84% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 43.22% for single and
joint filers with taxable income over $256,500. The applicable federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The combined brackets are not simply the sum
of each of the taxes, as they assume that State taxes are deducted on the
federal income tax return, reducing the effective combined tax brackets. The
brackets are also based on the highest Louisiana tax rate or average of the
highest single and joint tax rates within each bracket. As a result, some
taxpayers may have lower tax brackets within these ranges of income. These tax
brackets do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income. Investors who do not itemize or who are subject to such phaseout or
limitation will have a higher combined tax bracket than indicated above.
Investors should consult with their tax adviser for additional information.
These illustrations are not meant to imply any future rate of return for the
Fund.
<TABLE>
<CAPTION>
TAX BRACKET
18.40% 32.32% 35.14% 39.84% 43.22%
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield .............................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent .......................... 6.13 7.39 7.71 8.31 8.81
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.65 2.20 2.11 1.96 1.85
</TABLE>
Marathon Louisiana
The Tax Free Yield Advantage
(39.84% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
5.00% Tax free investment
8.31% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,294.80) NONE
After-tax
income: $1,955.20 $5,000.00
The 1995 combined tax bracket takes into account federal and Louisiana
State income taxes. Based on an investment yielding 5.00%, and assuming the
deductibility of Louisiana taxes on the federal return, the bracket is 39.84%
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. The chart is based on 3-month bank CDs (Sources: The Wall Street
Journal and Eaton Vance Management). Tax free yields are shown for
illustration purposes only and are not meant to represent actual results of an
investment in the Fund. See your financial adviser for the Fund's current
yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 38.1% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Louisiana Tax Free Fund to EV Marathon
Louisiana Tax Free Fund on February 1, 1994 and to EV Marathon Louisiana
Municipals Fund on January 1, 1996.
<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 and Louisiana State income tax laws and tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND LOUISIANA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- ------------------- LA STATE -------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------- -------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over - $256,500 Over - $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Louisiana personal income tax after deductions and exemptions.
<F2> Tax brackets are calculated using the highest Louisiana tax rate within the brackets. Taxpayers with taxable income
within these brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Louisiana taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. 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 Louisiana 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 Louisiana Municipals
Fund will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Louisiana 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 Louisiana personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal
income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax. The illustrations assume
that the federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MARYLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Maryland State and local income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Maryland Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Maryland considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Maryland issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Maryland issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Generally Maryland has been among the most heavily indebted of the states,
although its position is more moderate with the inclusion of local debt,
reflecting in part the State assumption several years ago of a substantial
portion of local school construction costs. The State became concerned over
its debt levels and, following recommendations of a debt affordability
committee, has practiced restraint in borrowing. Resources have also expanded
and debt ratios have fallen. Capital borrowing plans are reasonable and
designed not to increase debt levels. Recently, major infrastructure projects
undertaken, including a light rail line, a stadium, and airport and convention
center improvements, have been financed primarily by revenue-backed or other
non-general obligation financings.
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State, as well as the various counties and
municipalities of the State, issues general obligation bonds payable from ad
valorem taxes for capital improvements. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities, as well as several local
governments, issue obligations payable solely from identified taxes or revenue
streams, including loan obligations from nonprofits, companies or other
private entities, and for which the State or local government has no liability
and has given no moral obligation assurance. The State, its agencies and
departments and the various localities also enter into municipal leases or
installment purchase obligations. Such a lease is not a general obligation of
the municipality for which the municipality's taxing power is pledged but is
ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease. Such municipal leases generally
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis.
During fiscal year 1991 through 1993, the State experienced budgetary
problems caused by a national recession. To address revenue shortfalls and
expanded expenditure requirements the State increased tax and other revenues,
curtailed various programs and transferred funds from various reserve
accounts. The State ended its fiscal year 1994 with a General Fund suplus on a
budgetary basis of approximately $60.0 million, and ended its fiscal year 1995
with a General Fund surplus on a budgetary basis of approximately $26.5
million (excluding $106 million to be applied to the fiscal year 1996 budget)
and $286.1 million in the Revenue Stabilization Account of the State Reserve
Fund. When the fiscal year 1996 budget was enacted, it was anticipated that
the year-end General Fund surplus on a budgetary basis would be approximately
$7.8 million and that there would be $370.9 million in the State's Revenue
Stabilization Account. The State currently projects the year-end General Fund
surplus on a budgetary basis to be approximately $34.3 million and the balance
in the Revenue Stabilization Account to be approximately $51.8 million. Fiscal
year 1995 revenues for the General Fund were $7.09 billion; fiscal 1996
revenues for the General Fund are anticipated to be $7.43 billion.
<PAGE>
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $115,004,176. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$459,907 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $390,773 (equivalent to 0.39% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, absent a fee reduction, the Portfolio would have paid BMR
advisory fees of $153,778 (equivalent to 0.34% (annualized) of the Portfolio's
average daily net assets for such period). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $11,256.
The Portfolio's Investment Advisory Agreement with BMR is dated October 13,
1992 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I
of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, Eaton Vance would have earned, absent a fee reduction,
advisory fees of $28,837 (equivalent to 0.23% (annualized) of the Fund's
average daily net assets for such period). To enhance the net income of the
Fund, Eaton Vance made a reduction of the full amount of its advisory fee.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
August 31, 1995, the Principal Underwriter paid sales commissions of $387,594
to Authorized Firms on sales of Fund shares. During the same period, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $845,760, which amount reduced Uncovered Distribution Charges.
During such period contingent deferred sales charges aggregating approximately
$511,000 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August
31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $4,520,000
(which amount was equivalent to 4.0% of the Fund's net assets on such date).
During the fiscal year ended August 31, 1995, the Fund paid service fee
payments under the Plan aggregating $143,033, of which $142,762 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,125 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $10,410. For
the fiscal year ended August 31, 1995, the Portfolio paid IBT $16,357.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio) the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995, earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $666 $1,563(2) $135,000(4)
Samuel L. Hayes, III ...... 643 1,608(3) 150,000(5)
Norton H. Reamer .......... 628 1,631 135,000
John L. Thorndike ......... 637 1,718 140,000
Jack L. Treynor ........... 686 1,647 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) has served as a Vice President of the
Portfolio since June 19, 1995. Mr. Browse has been a Vice President of BMR and
Eaton Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse
is an officer of various investment companies managed by Eaton Vance or BMR.
Prior to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader --
Fidelity Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the 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 February 3, 1992 through August
31, 1995 and for the one year period ended August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 2/3/92<F1> $1,000 $1,234.00<F2> $1,204.00<F2> 23.40% 6.05% 20.40% 5.32%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,067.09 $1,017.09 6.71% 6.71% 1.71% 1.71%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on February 3, 1992.
<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 distributions, or 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 Fund's current prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.62%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.62% would be 7.28%,
assuming a combined federal and State tax rate of 36.52%.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 15, 1995) was 4.75%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.86%.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 35.7%
Aa or AA 18.4
A 31.0
Baa or BBB 11.6
Ba or BB --
B --
Below B --
Not rated 3.3
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in
the Fund yielding a hypothetical 5% with the after-tax yield of a certificate
of deposit yielding 3.25%. The tax brackets used are the combined federal and
Maryland State and local income tax brackets applicable for 1995: 21.80% for
single filers with taxable income up to $23,350 and joint filers up to
$39,000; 33.76% for single filers with taxable income from $23,351 to $56,550
and joint filers from $39,001 to $94,250; 36.52% for single filers with
taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 41.12% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 44.43% for single and
joint filers with taxable income over $256,500. The applicable federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. These brackets assume that Maryland taxes are
deducted on the federal income tax return, reducing the effective combined tax
brackets. These brackets do not take into account the phaseout of personal
exemptions and limitation on deductibility of itemized deductions over certain
ranges of income. Taxpayers who do not itemize or who are subject to such
phaseout or limitation will have a higher combined bracket than indicated
above. The combined tax brackets also assume the maximum local income tax rate
equal to 60% of the State tax rate applies and the highest Maryland State
income tax rate applicable at the upper portion of the brackets. Accordingly,
some taxpayers may have lower combined tax brackets than indicated above.
Investors should consult with their tax advisers for additional information.
These illustrations are not meant to imply any future rate of return for the
Fund.
<TABLE>
<CAPTION>
TAX BRACKET
21.80% 33.76% 36.52% 41.12% 44.43%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.39 7.55 7.88 8.49 9.00
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.54 2.15 2.06 1.91 1.81
</TABLE>
Marathon Maryland
The Tax Free Yield Advantage
(41.12% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.91% After-tax yield
5.00% Tax free investment
8.49% Taxabale equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,336.40) NONE
After-tax
income: $1,913.60 $5,000.00
The 1995 combined tax bracket takes into account federal and Maryland
State and local income taxes. Assuming the deductibility of State and local
taxes on the federal return, the bracket is 41.12% 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 represent actual results of an
investment in the Fund. See your financial adviser for the Fund's current
yield and actual CD rates.
TAXES
The Fund will not be subject to Maryland corporate income tax, provided
that, if there exists sufficient nexus between the State of Maryland and the
Fund to enable Maryland to tax the Fund, then the Fund will not be subject to
the corporate income tax for a taxable year if the Fund distributes to
shareholders all of its net investment income for such year.
The Fund will not be subject to Maryland financial institution franchise
taxes.
Obligations held by the Fund will not be subject to Maryland personal
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 16.5% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. To the knowledge of the Trust, no other person owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Maryland Tax Free Fund to EV Marathon
Maryland Tax Free Fund on February 1, 1994 and to EV Marathon Maryland
Municipals Fund on January 1, 1996.
<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 and Maryland State income tax laws and tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND MARYLAND STATE AND LOCAL
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- ------------------- MD STATE -------------------------------------------------------------
AND LOCAL
(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 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57
$ 56,551 - $117,950 $ 94,251 - $143,600 36.52 6.30 7.09 7.88 8.66 9.45 10.24 11.03
$117,951 - $256,500 $143,601 - $256,500 41.12 6.79 7.64 8.49 9.34 10.19 11.04 11.89
Over $256,500 Over $256,500 44.43 7.20 8.10 9.00 9.90 10.80 11.70 12.60
<FN>
<F1> Net amount subject to federal and Maryland State and local personal income taxes after deductions and exemptions.
<F2> Tax brackets are calculated using the highest Maryland State and local tax rate within the brackets. Taxpayers with taxable
income within these brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The
illustration assumes the taxpayer is subject to a local income tax which is 60% of the State rate. The combined tax rates
assume that Maryland taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions
on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those
indicated above. 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 Maryland State and local
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 Maryland Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Maryland State 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 Maryland State personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal
income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax. The illustrations assume
that the federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MISSOURI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Missouri State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Missouri Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Missouri considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Missouri issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Missouri issuers. Neither the Trust nor the Portfolio has independently
verified this information.
While Missouri has a diverse economy with a distribution of earnings and
employment among manufacturing, trade and service sectors closely
approximating the average national distribution, the national economic
recession of the early 1980's had a disproportionately adverse impact on the
economy of Missouri. However, since the 1980 to 1983 recession periods,
Missouri unemployment levels generally approximated or slightly exceeded the
national average. The St. Louis and Kansas City metropolitan areas are
important contributors to the Missouri economy. Economic reversals in either
of these two areas would have a major impact on the overall economic condition
of the State of Missouri. Additionally, the State of Missouri has a
significant agricultural sector which is experiencing farm-related problems
comparable to those which are occurring in other states. To the extent that
these problems were to intensify, there could possibly be an adverse impact on
the overall economic condition of the State.
Defense related business plays an important role in Missouri's economy. In
addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related businesses
in Missouri are the recipients of substantial annual dollar volumes of defense
contract awards. McDonnell Douglas Corporation, the State's largest employer,
received the second largest dollar amount of defense contracts in the United
States in 1994. There can be no assurances there will not be further changes
in the levels of military appropriations, and, to the extent that further
changes in military appropriations are enacted by the United States Congress,
Missouri could be disproportionately affected.
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty: litigation
continues on many issues, court orders are unpredictable, and school district
spending patterns have proven difficult to predict. A recent Supreme Court
decision favorable to the State may decrease the level of State funding
required in the future, but the impact of this decision is uncertain. The
State paid $282 million for desegregation costs in fiscal 1994 and the budget
for fiscal 1995 provided $315 million. This expense accounts for close to 7%
of total state General Revenue Fund spending.
Article X, Sections 16-24 of the Constitution of Missouri (the "Hancock
Amendment") imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well
as on the amount of local taxes, licenses and fees (including taxes, licenses
and fees used to meet debt service commitments on debt obligations) which may
be imposed by local governmental units (such as cities, counties, school
districts, fire protection districts and other similar bodies) in the State of
Missouri in any fiscal year.
The limit on taxes is tied to total State revenues determined in
accordance with the formula set forth in the amendment, which adjusts the
limit based on increases in the average personal income of Missouri for
certain designated periods. The details of the amendment are complex and
clarification from subsequent legislation and further judicial decisions may
be necessary. Generally, if the total State revenues exceed the State revenue
limit imposed by Section 18 of Article X by more than 1%, the State is
required to refund the excess. The State revenue limitation imposed by the
Hancock Amendment does not apply to taxes imposed for the payment of principal
and interest on bonds, approved by the voters and authorized by the Missouri
Constitution. The revenue limit can also be exceeded by a constitutional
amendment authorizing new or increased taxes or revenues adopted by the voters
of the State of Missouri. The Hancock Amendment also limits new taxes,
licenses and fees and increases in taxes, licenses and fees by local
governmental units in Missouri. It prohibits counties and other political
subdivisions (essentially all local governmental units) from levying new
taxes, licenses and fees or increasing the current levy of an existing tax,
license or fee "without the approval of the required majority of the qualified
voters of that county or other political subdivision voting thereon."
When a local governmental unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced "to yield the same estimated gross revenue as on the prior base." It
also effectively limits any percentage increase in property tax revenues to
the percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $93,162,103. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$353,176 (equivalent to 0.38% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $296,556 (equivalent to 0.37% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $112,605
(equivalent to 0.30% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, Eaton Vance would have earned, absent a fee reduction,
advisory fees of $21,976 (equivalent to 0.21% (annualized) of the Fund's
average daily net assets for such period). To enhance the net income of the
Fund, Eaton Vance made a reduction of its fee in the amount of $15,183.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
August 31, 1995, the Principal Underwriter paid sales commissions of $220,357
to Authorized Firms on sales of Fund shares. During the same period, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $677,042, which amount reduced Uncovered Distribution Charges.
During such period contingent deferred sales charges aggregating approximately
$279,000 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at August
31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $3,461,000
(which amount was equivalent to 3.9% of the Fund's net assets on such date).
During the fiscal year ended August 31, 1995, the Fund paid service fee
payments under the Plan aggregating $129,925, of which $129,622 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $812.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $9,929. For
the fiscal year ended August 31, 1995, the Portfolio paid IBT $35,917.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio) the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995, earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex{1}:
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $333 $1,164{2} $135,000{4}
Samuel L. Hayes, III ...... 322 1,222{3} 150,000{5}
Norton H. Reamer .......... 314 1,254 135,000
John L. Thorndike ......... 318 1,336 140,000
Jack L. Treynor ........... 343 1,235 140,000
- ----------
{1} The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
{2} Includes $294 of deferred compensation.
{3} Includes $393 of deferred compensation.
{4} Includes $35,000 of deferred compensation.
{5} Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the 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 May 1, 1992 through August 31,
1995 and for the one year period ended August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 5/1/92<F1> $1,000 $1,257.58 $1,227.58 25.76% 7.10% 22.76% 6.33%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,078.18 $1,028.18 7.82% 7.82% 2.82% 2.82%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on May 1, 1992.
<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 distributions, or 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 Fund's current Prospectus.
<F3> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.54%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.54% would be 6.71%,
assuming a combined federal and State tax rate of 35.14%.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 15, 1995) was 4.58%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.67%.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 52.3%
Aa or AA 18.0
A 20.5
Baa or BBB 7.6
Ba or BB --
B --
Below B --
Not rated 1.6
----
Total 100.0%
The following compares the taxable equivalent yield of an investment in
the Fund yielding a hypothetical 5% with the after-tax yield of a certificate
of deposit yielding 3.25%. The tax brackets used are the combined federal and
Missouri State income tax brackets applicable for 1995: 20.10% for single
filers with taxable income up to $23,350 and joint filers up to $39,000;
32.32% for single filers with taxable income from $23,351 to $56,550 and joint
filers from $39,001 to $94,250; 35.14% for single filers with taxable income
from $56,551 to $117,950 and joint filers from $94,251 to $143,600; 39.84% for
single filers with taxable income from $117,951 to $256,500 and joint filers
from $143,601 to $256,500; and 43.22% for single and joint filers with taxable
income over $256,500. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of
income. The assumed Missouri State income tax rate is 6%. The combined
brackets are not simply the sum of each of the taxes, as they assume that
State taxes are deducted on the federal income tax return, reducing the
effective combined tax brackets. These brackets do not take into account the
phaseout of personal exemptions and limitation on deductibility of itemized
deductions over certain ranges of income. Investors who do not itemize or who
are subject to such phaseout or limitation will have a higher combined tax
bracket than indicated above. Investors should consult with their tax advisers
for additional information. These illustrations are not meant to imply any
future rate of return for the Fund.
<TABLE>
TAX BRACKET
20.10% 32.32% 35.14% 39.84% 43.22%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.26 7.39 7.71 8.31 8.81
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.60 2.20 2.11 1.96 1.85
</TABLE>
Marathon Missouri
The Tax Free Yield Advantage
(39.84% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
5.00% Tax free investment
8.31% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,294.80) NONE
After-tax
income: $1,955.20 $5,000.00
The 1995 combined tax bracket takes into account federal and Missouri
State income taxes. Assuming the deductibility of State taxes on the federal
return, the bracket is 39.84% 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 (Sources: The Wall Street Journal and Eaton Vance
Management). Tax free yields are shown for illustration purposes only and are
not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 7.6% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. To the knowledge of the Trust, no other person owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance Missouri Tax Free Fund to EV Marathon
Missouri Tax Free Fund on February 1, 1994 and to EV Marathon Missouri
Municipals Fund on January 1, 1996.
<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 and Missouri State income tax laws and tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND MISSOURI STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------- -------------------- MO 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 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Missouri personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Missouri tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Missouri taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. 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 Missouri 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 Missouri Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Missouri 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 Missouri personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal
income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax. The illustrations assume
that the federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NORTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and North Carolina State
personal income taxes. The Fund currently seeks to achieve its investment
objective by investing its assets in the North Carolina Municipals Portfolio
(the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain North Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in North Carolina issuers. Such information supplements the
information in the Prospectus, it is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of North Carolina issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The economic profile of the State consists of a combination of industry,
agriculture and tourism. The State's seasonally adjusted unemployment rate in
June 1995 was 4.4% of the labor force, as compared with an unemployment rate
of 5.6% nationwide. The labor force has undergone significant change during
recent years. The State has moved from an agricultural to a service and "goods
producing" economy. Those persons displaced by farm mechanization and farm
consolidations have, in large measure, sought and found employment in other
pursuits.
During fiscal 1991 and 1992, the State was forced to employ various non-
recurring items and budget reductions in order to balance the State's budget.
Among other things, the State deferred Basic Education Program improvements.
In addition, the State also implemented approximately $640 million in tax
increases, including raising the State sales tax from 3% to 4%. This 4% tax is
the State's portion of the total 6% sales tax with the rest dedicated to local
governments. A 4% corporate income tax surcharge was also implemented and is
scheduled to terminate on January 1, 1995. The State's fiscal position has
improved considerably since 1992, with the general fund balance increasing
from a deficit position to a surplus equal to 11% of 1994 expenditures.
The State is a defendant in pending court actions involving the taxing of
benefits paid to federal retirees and related matters. Although specific
claims for damages have not been precisely calculated, the amount could exceed
$400 million over a period of years. The State is also a defendant in several
other litigations which, in the opinion of the Department of the Treasurer,
could have a material adverse affect on the State's ability to meet its
obligations. In the Leandro action, the plaintiffs claim that the State has
failed to provide adequate or substantially equal educational opportunities to
children. In the Francisco action, the plaintiffs claim that the State has
failed to fund programs to educate non-English speaking students. In a series
of cases involving State retirement benefits, disabled retirees are
challenging, on various grounds, changes in the formula for paying retirement
benefits. Damages could exceed $100 million. In the Fulton case, the
imposition of the State's intangible personal property tax on shares of stock
has been challenged.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $195,178,724. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$851,448 (equivalent to 0.44% of the Portfolio's average daily net assets for
such period). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $744,143 (equivalent to 0.42% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $373,030
(equivalent to 0.40% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, the Fund paid Eaton Vance advisory fees of $108,407
(equivalent to 0.37% (annualized) of the Fund's average daily net assets for
such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, including the Rule 12b-1 Trustees, as required by Rule
12b-1. During the fiscal year ended August 31, 1995, the Principal Underwriter
paid sales commissions of $434,383 to Authorized Firms on sales of Fund
shares. During the same period, the Fund made sales commission payments under
the Plan to the Principal Underwriter aggregating $1,405,043, which amount
reduced Uncovered Distribution Charges. During such period, contingent
deferred sales charges aggregating approximately $575,000 were imposed on
early redeeming shareholders and paid to the Principal Underwriter to reduce
Uncovered Distribution Charges. As at August 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Plan amounted to approximately $7,188,000 (which amount was equivalent to
3.8% of the Fund's net assets on such day). During the fiscal year ended
August 31, 1995, the Fund paid service fee payments under the Plan aggregating
$267,517, of which $266,540 was paid to Authorized Firms and the balance of
which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,577.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $500. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, and the Portfolio,
and, for the year ended September 30, 1995 earned the following compensation
in their capacites as Trustees of the other funds in the Eaton Vance fund
comple{1}:
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $666 $2,096{2} $135,000{4}
Samuel L. Hayes, III ...... 643 2,123{3} 150,000{5}
Norton H. Reamer .......... 628 2,133 135,000
John L. Thorndike ......... 637 1,718 140,000
Jack L. Treynor ........... 686 2,196 140,000
- ----------
{1} The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
{2} Includes $525 of deferred compensation.
{3} Includes $682 of deferred compensation.
{4} Includes $35,000 of deferred compensation.
{5} Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, David C. Reilly (38) is a Vice President of the Portfolio. Mr.
Reilly has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Reilly has been a Vice President of BMR since 1992 and Eaton Vance since
1991, and is an officer of various investment companies managed by Eaton Vance
or BMR. Prior to joining Eaton Vance, Mr. Reilly was a Vice President and a
municipal bond analyst at Scudder, Stevens & Clark (1984-1991).
PERFORMANCE 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 October 23, 1991 through August
31, 1995 and for the one year period ended August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 10/23/91<F1> $1,000 $1,230.52 $1,200.64 23.05% 5.52% 20.06% 4.85%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,050.26 $1,000.31 5.03% 5.03% 0.03% 0.03%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on October 23, 1991.
<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 distributions or 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 Fund's current Prospectus.
<F3> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.55%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.55% would be 7.15%,
assuming a combined Federal and State tax rate of 36.35%.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 15, 1995) was 4.77%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.88%.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 35.1%
Aa or AA 29.9
A 26.1
Baa or BBB 7.5
Ba or BB --
B --
Below B --
Not rated 1.4
-----
Total 100.0%
The following compares the taxable equivalent of an investment in the Fund
yielding a hypothetical 5.0% with the after tax-yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
North Carolina tax brackets, applicable for 1995: 20.95% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 33.04% for
single filers with taxable income from $23,351 to $56,550 and joint filers
from $39,001 to $94,250; 36.35% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600; 40.96% for
single filers with taxable income from $117,951 to $256,500 and joint filers
from $143,601 to $256,500; and 44.28% for single and joint filers with taxable
income over $256,500. The applicable federal tax rates within each of these
combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same range of
income. The combined brackets are not simply the sum of each of the taxes, as
they assume that State taxes are deducted on the federal income tax return,
reducing the effective combined tax brackets. These tax brackets do not take
into account the phaseout of personal exemptions and limitation on
deductibility of itemized deductions over certain ranges of income. Investors
who do not itemize or who are subject to such phaseout or limitation will have
a higher combined tax bracket than indicated above. In addition, the combined
tax brackets were calculated using the highest State income tax rate within
each bracket. Accordingly, some taxpayers will have lower combined tax
brackets and taxable equivalent yields over these ranges of income. Investors
should consult with their tax adviser for additional information. These
illustrations are not meant to imply any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.95% 33.04% 36.35% 40.96% 44.28%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.33 7.47 7.86 8.47 8.97
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.57 2.18 2.07 1.92 1.81
</TABLE>
Marathon North Carolina
The Tax Free Yield Advantage
(40.96% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.92% After-tax yield
5.00% Tax free investment
8.47% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,331.20) NONE
After-tax
income: $1,918.80 $5,000.00
The 1995 combined tax bracket takes into account federal and North
Carolina State income taxes. Based on an investment yielding 5.0%, and
assuming the deductibility of state taxes on the federal return, the bracket
is 40.96% 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. Chart is based on 3-month bank CDs (Sources: The Wall Street Journal
and Eaton Vance Management). Tax free yields are shown for illustration
purposes only and are not meant to represent actual results of an investment
in the Fund. See your financial adviser for the Fund's current yield and
actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 12.9% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance North Carolina Tax Free Fund to EV Marathon
North Carolina Tax Free Fund on February 1, 1994 and to EV Marathon North
Carolina Municipals Fund on January 1, 1996.
<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 and the North Carolina State income tax rates applicable for 1995. It
gives the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND NORTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------------------------- NC 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 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551 - $117,950 $ 94,251 - $143,600 36.35 6.28 7.07 7.86 8.64 9.43 10.21 11.00
$117,951 - $256,500 $143,601 - $256,500 40.96 6.78 7.62 8.47 9.32 10.16 11.01 11.86
Over $256,500 Over $256,500 44.28 7.18 8.08 8.97 9.87 10.77 11.67 12.56
<FN>
<F1> Net amount subject to the federal and North Carolina personal income tax after deductions and exemptions.
<F2> Tax brackets are calculated using the highest North Carolina tax rate within each bracket. Accordingly, taxpayers with
taxable income within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that North Carolina taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. 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 North Carolina 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 North Carolina Municipals
Fund will achieve any specific tax exempt yield. While it is expected that the
Fund will invest principally in obligations, the interest from which is exempt
from the regular federal income tax and North Carolina personal income taxes,
other income received by the Portfolio and alloated 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 North Carolina personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal
income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax. The illustrations assume
that the federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON OREGON MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Oregon State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Oregon Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Oregon considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Oregon issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Oregon issuers. Neither
the Trust nor the Portfolio has independently verified this information.
The principal sources of State tax revenues are the personal income and
corporation excise taxes; there is no State sales tax. Recent State financial
results have been favorable, reflecting the improved economy through strong
growth in tax resources. General fund financial performance has been strong.
After addressing financial problems in the earlier part of the recession, the
State was able to maintain satisfactory general fund operations. The State
budget is on a two year basis. The 1991-1993 budget ended with a fund balance of
$302 million, equal to 14% of expenditures and the ending balance for the
1993-95 biennium was $500 million. General Fund revenues for the 1995-97
biennium are budgeted to increase 6.5% while expenditures are budgeted to
increase 14%.
In 1991 and 1992, in response to concerns over diminishing salmon runs,
three species of Snake River salmon were placed on the Endangered Species list.
More recently, the National Marine Fisheries Service and the U.S. Fish and
Wildlife Service have commenced status reviews of hundreds of additional salmon
and trout populations in the Columbia Basin and throughout Western Oregon. The
Snake River salmon listings have already had substantial economic impacts,
primarily through increased electricity rates and related impacts on
rate-sensitive industries such as the aluminum industry. In addition, the State
is now working on setting minimum stream flows for waterways that have been
formally designated as scenic waterways, and is revising and implementing river
basin plans that restrict new (but not established) access to surface and ground
water diversions and withdrawals. These restrictions will make it more difficult
to obtain new water rights and may slow urban and agricultural development and
expansion.
In November 1990, Oregon voters adopted Ballot Measure 5 which amended the
State constitution to impose a general cap on ad valorem property taxes. The
limit is subject to certain exceptions and will be phased in over a 5-year
period ending with the 1996 tax year. The passage of Ballot Measure 5 has not
caused a down-grading of the State's rating with Moody's or S&P, however, S&P
has revised the outlook on the State's debt from "Stable" to "Negative" as a
result of the increased costs imposed on the State by Measure 5. The limitations
of Ballot Measure 5 generally do not apply to taxes imposed to pay debt service
on general obligations of the State. Moreover, because the State currently
receives its revenues from sources other than property taxes, Ballot Measure 5
will not directly reduce the State revenues. However, until 1996, the State is
required to use its general fund to replace any revenue lost by the public
school system due to the limitations of Ballot Measure 5. Therefore, the State
may be required to reallocate its future budgets or to seek new sources of
revenue to aid in school funding. The replacement requirement is estimated to
cost the State $1.5 billion in the 1993-95 biennium. In 1993, voters rejected
Measure 1, a proposal to fund Measure 5 requirements with a 5% sales tax.
The main impact of Ballot Measure 5 will be felt by local taxing units such
as cities, counties, and districts. To date, only a few local governments have
experienced a decrease in revenues from Ballot Measure 5. In recent years,
Oregon has experienced population growth above the national average and property
values have risen despite the national recession. If this trend continues, the
real market value base of property against which the limited tax rate may be
imposed may be more than enough to support the needs of Oregon's local
governments. Moreover, Ballot Measure 5 does not limit the amount of user fees
for services provided by governmental units that may be collected, and local
governments may rely more on such fees to finance local improvements. At this
time, however, the ultimate effect of Ballot Measure 5 on the continuing ability
of State and local governments to satisfy their debt obligations is not possible
to predict. In 1991, the Oregon legislature passed several bills in an effort to
ease the burden of Ballot Measure 5 on local governments. A variety of actions
taken by local governments in response to Ballot Measure 5 or under this new
legislation may be challenged in the courts as unconstitutional.
In November, 1994, voters approved three measures affecting the State's
penal system. The most significant in terms of financial impact for the State is
Measure 11. This measure established mandatory minimum sentences for certain
felons. Projected need for additional prison beds is expected to require $462
million in capital expenditures and an increase in prison operating expenses of
$100 million annually by 1998.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $146,390,921. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$609,837 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $534,681 (equivalent to 0.41% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $243,569 (equivalent to 0.37%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, the Fund paid Eaton Vance advisory fees of $51,593 (equivalent to 0.22%
(annualized) of the Fund's average daily net assets for such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $326,530 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$1,083,821, which amount reduced Uncovered Distribution Charges. During such
period contingent deferred sales charges aggregating approximately $666,000 were
imposed on early redeeming shareholders and paid to the Principal Underwriter to
reduce Uncovered Distribution Charges. As at August 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $5,529,000 (which amount was equivalent to 3.8%
of the Fund's net assets on such date). During the fiscal year ended August 31,
1995, the Fund paid service fee payments under the Plan aggregating $190,003, of
which $188,917 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,902.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $13,668. For
the fiscal year ended August 31, 1995, the Portfolio paid IBT $56,584.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio) the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex{1}:
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $666 $1,563{2} $135,000{4}
Samuel L. Hayes, III ...... 643 1,608{3} 150,000{5}
Norton H. Reamer .......... 628 1,631 135,000
John L. Thorndike ......... 637 1,718 140,000
Jack L. Treynor ........... 686 1,647 140,000
- ----------
{1} The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
{2} Includes $393 of deferred compensation.
{3} Includes $517 of deferred compensation.
{4} Includes $35,000 of deferred compensation.
{5} Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Cynthia J. Clemson (32) has served as a Vice President of the Portfolio since
June 19, 1995. Ms. Clemson has been a Vice President of BMR and Eaton Vance
since 1993 and an employee of Eaton Vance since 1985. Ms. Clemson is an officer
of various investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the 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 24, 1991 through August 31,
1995 and for the one year period ended August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 12/24/91<F1> $1,000 $1,259.12 $1,229.12 25.91% 6.44% 22.91% 5.75%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,072.20 $1,022.20 7.22% 7.22% 2.22% 2.22%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on December 24, 1991.
<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 distributions, or 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 Fund's current Prospectus.
<F3> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.46%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.46% would be 7.10%, assuming a
combined federal and State tax rate of 37.21%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.48%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.57%.
The Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
----------------------------------- -------------------------
Aaa or AAA 29.1%
Aa or AA 37.9
A 23.2
Baa or BBB 6.0
Ba or BB 1.0
B --
Below B --
Not rated 2.8
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 4.5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Oregon State income tax brackets applicable for 1995: 22.65% for single filers
with taxable income up to $23,350 and joint filers up to $39,000; 34.48% for
single filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 37.21% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 41.76% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 45.04% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
assumed Oregon State income tax rate is 9%. The combined brackets are not simply
the sum of each of the taxes, as they assume that State taxes are deducted on
the federal income tax return, reducing the effective combined tax brackets.
These brackets do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income. Investors who do not itemize or who are subject to such phaseout or
limitation will have a higher combined tax bracket than indicated above.
Investors should consult with their tax advisers for additional information.
These illustrations are not meant to imply or predict any future rate of return
for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
22.65% 34.48% 37.21% 41.76% 45.04%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent ............. 5.82 6.87 7.17 7.73 8.19
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.51 2.13 2.04 1.89 1.79
</TABLE>
Marathon Oregon
The Tax Free Yield Advantage
(41.76% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.89% After-tax yield
4.50% Tax free investment
7.73% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,357.20) NONE
After-tax
income: $1,892.80 $4,500.00
The 1995 combined tax bracket takes into account federal and Oregon State
income taxes. Assuming the deductibility of State taxes on the federal return,
the bracket is 41.76% 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 represent actual
results of an investment in the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 12.4% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned or record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Oregon Tax Free Fund to EV Marathon Oregon Tax Free Fund
on February 1, 1994 and to EV Marathon Oregon Municipals Fund on January 1,
1996.
<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
and Oregon State income tax laws and tax rates applicable for 1995. It gives the
approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND OREGON STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- ------------------- OR 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 22.65% 5.17% 5.82% 6.46% 7.11% 7.76% 8.40% 9.05%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.48 6.11 6.87 7.63 8.39 9.16 9.92 10.68
$ 56,551 - $117,950 $ 94,251 - $143,600 37.21 6.37 7.17 7.96 8.76 9.56 10.35 11.15
$117,951 - $256,500 $143,601 - $256,500 41.76 6.87 7.73 8.59 9.44 10.30 11.16 12.02
Over $256,500 Over $256,500 45.04 7.28 8.19 9.10 10.01 10.92 11.83 12.74
<FN>
<F1> Net amount subject to federal and Oregon personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Oregon tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Oregon taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. 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 Oregon State income taxes) for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above. The tax brackets and taxable equivalent yields do not take into account
the limited deductibility of federal income tax withholding in arriving at state
taxable income, which may decrease the taxable equivalent yield of the Fund to
certain investors.
Of course, no assurance can be given that EV Marathon Oregon Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Oregon 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 Oregon 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 appliable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON SOUTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and South Carolina State
personal income taxes. The Fund currently seeks to achieve its investment
objective by investing its assets in the South Carolina Municipals Portfolio
(the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain South Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in South Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of South Carolina issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The South Carolina Constitution requires the General Assembly to provide a
balanced budget and requires that if there is a deficit, such deficit shall be
provided for in the succeeding fiscal year. The State Constitution also
provides that (i) the State Budget and Control Board may, if a deficit appears
likely, effect such reductions in appropriations as may be necessary to
prevent a deficit, (ii) annual increases in State appropriations may not
exceed the average growth rate of the economy of the State, (iii) that the
annual increase in the number of State employees may not exceed the average
growth of the population of the State, and (iv) a General Reserve Fund be
maintained in an amount equal to 3% of General Fund revenue for the latest
fiscal year. The State also maintains a Capital Reserve Fund equal to 2% of
the General Reserve Fund.
Despite several spending reductions in fiscal 1992, the State recorded a
budgetary basis operating deficit of $54 million due to lower than anticipated
sales and corporate-income tax revenues. The State ended fiscal 1992 with only
$7.6 million in its budgetary general fund. In June 1993, the presidential
base-closing commission voted to close the Charleston Naval Base. South
Carolina has estimated lost revenues of $100 million over the three-year
period from July 1, 1993 to June 30, 1996 due to the closing. There can be no
guarantee that the actual cost will not be more or less than the State's
estimate. Budgetary General Fund revenues and expenditures for fiscal 1993
were $3.673 billion and $3.521 billion, respectively. There was a $151 million
surplus of which $33.7 million was deposited into the General Reserve Fund
("Rainy Day Fund") bringing its total to $100 million. Fiscal 1994 had
budgeted revenues and expenditures of $3.828 billion and $3.795 billion,
respectively. No new taxes were implemented. Fiscal 1994 ended with a General
Fund surplus of $248 million. The General Reserve Fund is now at its fully
funded level of $110.2 million. Fiscal 1995 has budgeted $3.93 billion for
expenditures with no new taxes expected.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $61,411,668. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$198,498 (equivalent to 0.33% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, the Portfolio paid BMR
advisory fees of $106,785 (equivalent to 0.31% (annualized) of the Portfolio's
average daily net assets for such period). The Portfolio's Investment Advisory
Agreement with BMR is dated October 13, 1992 and remains in effect until
February 28, 1996. The Agreement may be continued as described under
"Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
Prior to February 1, 1994 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1993 to
February 1, 1994 (when the Fund transferred its assets to the Portfolio) the
Fund paid Eaton Vance advisory fees of $45,467. For the period from the start
of business, October 2, 1992 to the fiscal year ended September 30, 1993,
Eaton Vance would have earned, absent a fee reduction, advisory fees of
$35,393 (equivalent to 0.19% (annualized) of the Fund's average daily net
assets for such period). To enhance the net income of the Fund, Eaton Vance
made a reduction of the full amount of its advisory fee and $32,659 of
expenses related to the operation of the Fund were allocated to Eaton Vance.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, as required by Rule 12b-1. During the fiscal year ended
August 31, 1995, the Principal Underwriter paid sales commissions of $264,379
to Authorized Firms on sales of Fund shares. During the same period, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $442,983, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $359,000 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
August 31, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$2,527,000 (which amount was equivalent to 4.2% of the Fund's net assets on
such date). During the fiscal year ended August 31, 1995, the Fund paid
service fee payments under the Plan aggregating $78,666, of which $69,735 was
paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $712.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $6,467. For
the fiscal year ended August 31, 1995, the Portfolio paid IBT $16,809
BROKERAGE
For the fiscal year ended August 31, 1995, the period from the start of
business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions. For the
period from the start of business, October 2, 1992 to the fiscal year ended
September 30, 1993, and for the period from October 1, 1993 to January 31,
1994 (when the Fund transferred its assets into the Portfolio), the Fund paid
no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995, earned the following compensation
in their capacities as Trustees of the other funds in the Eaton Vance fund
complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $333 $1,164(2) $135,000(4)
Samuel L. Hayes, III ...... 322 1,222(3) 150,000(5)
Norton H. Reamer .......... 314 1,254 135,000
John L. Thorndike ......... 318 1,336 140,000
Jack L. Treynor ........... 343 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $294 of deferred compensation.
(3) Includes $393 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, David C. Reilly (38) is a Vice President of the Portfolio. Mr.
Reilly has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Reilly has been a Vice President of BMR since 1992 and Eaton Vance since
1991, and is an officer of various investment companies managed by Eaton Vance
or BMR. Prior to joining Eaton Vance, Mr. Reilly was a Vice President and a
municipal bond analyst at Scudder, Stevens & Clark (1984-1991).
PERFORMANCE 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 October 2, 1992 through August 31,
1995 and for the one year period ended August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F3> 10/2/92<F1> $1,000 $1,157.21 $1,117.21 15.72% 5.13% 11.72% 3.87%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,056.38 $1,006.38 5.64% 5.64% 0.64% 0.64%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Investment operations began on October 2, 1992.
<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 distributions, or 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 Fund's current Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</FN>
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.63%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.63% would be 7.22%,
assuming a combined Federal and State tax rate of 35.83%.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 15, 1995) was 4.67%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.77%.
The Portfolio's diversification by quality ratings as of September 30,
1995 was:
PERCENT
RATING ASSIGNED BY OF BOND HOLDINGS
MOODY'S, S&P OR FITCH -------------------------
---------------------
Aaa or AAA 39.1%
Aa or AA 14.8
A 27.4
Baa or BBB 15.8
Ba or BB --
B --
Below B --
Not rated 2.9
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.0% with the after-tax yield
of a certificate of deposit yielding 3.25%. The tax brackets used in the table
are the Federal and South Carolina income tax brackets applicable for 1995:
20.95% for single filers with taxable income up to $23,350 and joint filers
up to $39,000; 33.04% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 35.83% for single filers
with taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 40.48% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 43.83% for single and
joint filers with taxable income over $256,500. The applicable Federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%,
over the same ranges of income. Tax brackets are calculated using the highest
state rate within each bracket. These brackets assume that South Carolina
taxes are deducted on the Federal income tax return, and do not take into
account the phaseout of personal exemptions and limitation on deductibility of
itemized deductions over certain ranges of income, which increase the
effective top Federal tax rate for certain taxpayers. Investors should consult
with their tax advisers for additional information. This illustration is not
meant to imply or predict any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.95% 33.04% 35.83% 40.48% 43.83%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.33 7.47 7.79 8.40 8.90
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.57 2.18 2.09 1.93 1.83
</TABLE>
Marathon South Carolina
The Tax Free Yield Advantage
(40.48% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.93% After-tax yield
5.00% Tax free investment
8.40% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,315.60) NONE
After-tax
income: $1,934.40 $5,000.00
The 1995 combined tax bracket takes into account Federal and South
Carolina State income taxes. Assuming the deductibility of South Carolina
taxes on the Federal return, the bracket is 40.48% 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 represent actual results of an
investment in the Fund. See your financial adviser for the Fund's current
yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 15, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 18.26% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. To the knowledge of the Trust, no other person
beneficially owns more than 5% of the Fund's outstanding shares.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance South Carolina Tax Free Fund to EV Marathon
South Carolina Tax Free Fund on February 1, 1994. The Fund changed its name
from EV Marathon South Carolina Tax Free Fund to EV Marathon South Carolina
Municipals Fund on January 1, 1996.
<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 and South Carolina State income tax laws and tax rates applicable for
1995. It gives the approximate yield a taxable security must earn at various
income brackets to produce after-tax yields equivalent to those of tax exempt
bonds yielding from 4% to 7%.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND SOUTH CAROLINA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN SC STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------- -------------------- -------------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------- ---------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.85%
$ 23,351 - $ 56,500 $ 39,001 - $ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551 - $117,950 $ 94,251 - $143,600 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$117,951 - $256,500 $143,601 - $256,500 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $256,500 Over $256,500 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
<FN>
<F1> Net amount subject to Federal and South Carolina personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest South Carolina tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined tax bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that South Carolina taxes are Itemized Deductions for Federal income tax purposes. Investors who do not itemize
deductions on their Federal Income Tax Return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. 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 South Carolina State income tax)
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 South Carolina Municipals
Fund will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and South Carolina 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 South Carolina personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular Federal income
tax, is treated as a tax preference item which could subject the recipient to
the Federal alternative minimum tax. The illustrations assume that the Federal
alternative minimum tax is not applicable and do not take into account any tax
credit that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON TENNESSEE MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Tennessee State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Tennessee Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Tennessee considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Tennessee issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Tennessee issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Tennessee's State Constitution requires that (1) the total expenditures of
the State for any fiscal year shall not exceed the State's revenues and
reserves, including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations from
State tax revenues exceed the estimated rate of growth of the State's economy.
In the past, the Governor and the General Assembly have had to restrict
expenditures to comply with the State Constitution.
The financial operations of the State have been negatively impacted by the
recent national economic downturn. The State was forced to partially drain down
its General Fund balance to support operations. The General Fund balance was
reduced to $7.3 million in 1991, however, operating surpluses for 1992 and 1993
have built up the balance to $150.1 million for 1993. Several new programs could
have a negative impact on the financial operations of the State. A half percent
increase in the sales tax rate, imposed in fiscal 1993, was dedicated to a new
education program. Tennessee will provide healthcare to the entire Medicaid
population as well as the uninsured population in the State. The service tax
that was implemented to help fund this program was repealed.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $58,673,303. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$177,788 (equivalent to 0.31% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $125,060 (equivalent to 0.28% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, BMR would have earned, absent a fee reduction, advisory fees of $32,069
(equivalent to 0.19% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a portion
of expenses related to the operation of the Portfolio in the amount of $4,724.
The Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, Eaton Vance would have earned, absent a fee reduction, advisory fees of
$3,593 (equivalent to 0.14% (annualized) of the Fund's average daily net assets
for such period). To enhance the net income of the Fund, Eaton Vance made a
reduction of the full amount of its advisory fee and Eaton Vance was allocated a
portion of the expenses related to the operation of the Fund in the amount of
$17,655.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $225,544 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$414,636, which amount reduced Uncovered Distribution Charges. During such
period contingent deferred sales charges aggregating approximately $235,000 were
imposed on early redeeming shareholders and paid to the Principal Underwriter to
reduce Uncovered Distribution Charges. As at August 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $2,357,000 (which amount was equivalent to 4.1%
of the Fund's net assets on such date). During the fiscal year ended August 31,
1995, the Fund paid service fee payments under the Plan aggregating $63,089, of
which $62,858 was paid to Authorized Firms and the balance of which was retained
by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $547.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $6,467. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $13,033.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992 to
February 1, 1993 (when the Fund transferred its assets to the Portfolio) the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1) :
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight .... $333 $1,164(2) $135,000(4)
Samuel L. Hayes, III 322 1,222(3) 150,000(5)
Norton H. Reamer .... 314 1,254 135,000
John L. Thorndike ... 318 1,336 140,000
Jack L. Treynor ..... 343 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $231 of deferred compensation.
(3) Includes $424 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Cynthia J. Clemson (32) has served as a Vice President of the Portfolio since
June 19, 1995. Ms. Clemson has been a Vice President of BMR and Eaton Vance
since 1993 and an employee of Eaton Vance since 1985. Ms. Clemson is an officer
of various investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the 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 August 25, 1992 through August 31, 1995
and for the one year period ended August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE** ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund*** 8/25/92* $1,000 $1,193.63 $1,163.63 19.36% 6.04% 16.36% 5.15%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,061.20 $1,011.20 6.12% 6.12% 1.12% 1.12%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on August 25, 1992.
** No contingent deferred sales charge is imposed on shares purchased more than six years prior to the redemption, shares
acquired through the reinvestment of distributions, or 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 Fund's current Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.71%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.71% would be 7.26%, assuming a
combined federal and State tax rate of 35.14%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.75%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.85%.
The Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
----------------------------------- -------------------------
Aaa or AAA 38.1%
Aa or AA 23.1
A 20.7
Baa or BBB 16.5
Ba or BB --
B --
Below B --
Not rated 1.6
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 5% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Tennessee State income tax brackets applicable for 1995: 20.10% for single
filers with taxable income up to $23,350 and joint filers up to $39,000; 32.32%
for single filers with taxable income from $23,351 to $56,550 and joint filers
from $39,001 to $94,250; 35.14% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600; 39.84% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 43.22% for single and joint filers with taxable income
over $256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
assumed Tennessee State income tax rate is 6%. The combined brackets are not
simply the sum of each of the taxes, as they assume that State taxes are
deducted on the federal income tax return, reducing the effective combined tax
brackets. These brackets do not take into account the phaseout of personal
exemptions and limitation on deductibility of itemized deductions over certain
ranges of income. Investors who do not itemize or who are subject to such
phaseout or limitation will have a higher combined tax bracket than indicated
above. Investors should consult with their tax adviser for additional
information. These illustrations are not meant to imply any future rate of
return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
20.10% 32.32% 35.14% 39.84% 43.22%
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.26 7.39 7.71 8.31 8.81
<CAPTION>
TAX BRACKET*
15% 28% 31% 36% 39.6%
----------------------------------------------------------------------
Certificates of deposit:
<S> <C> <C> <C> <C> <C>
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.76 2.34 2.24 2.08 1.96
* Bank deposits are not subject to Tennessee State income tax. Accordingly, the combined tax brackets applicable to after-tax
yields are 15%, 28%, 31%, 36% and 39.6%.
</TABLE>
Marathon Tennessee
The Tax Free Yield Advantage
(39.84% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
5.00% Tax free investment
8.31% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,170.00) NONE
After-tax
income: $2,080.00 $5,000.00
The 1995 combined tax bracket takes into account federal and Tennessee State
income taxes. Assuming the deductibility of State taxes on the federal return,
the bracket is 39.84% 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). After-tax yields
of bank CDs reflect only the federal income tax rate of 36% applicable over the
same range of income, as bank CDs are exempt from the Tennessee State income
tax. Tax free yields are shown for illustration purposes only and are not meant
to represent actual results of an investment in the Fund. See your financial
adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 11.3% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Tennessee Tax Free Fund to EV Marathon Tennessee Tax Free
Fund on February 1, 1994 and to EV Marathon Tennessee Municipals Fund on January
1, 1996.
<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
and Tennessee State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND TENNESSEE STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------- -------------------- TN 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> <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 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Tennessee personal income tax after deductions and exemptions.
<F2> The combined tax rates assume that Tennessee taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. 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 Tennessee 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 Tennessee Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Tennessee 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 Tennessee personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON VIRGINIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Virginia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Virginia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Virginia issuers. Such information supplements the information in the
Prospectus, it is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Virginia issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Commonwealth of Virginia has had a tradition of low debt, and a large
proportion of its general obligation bonds has been supported by particular
revenue-producing projects. However, a trend towards more use of non-general
obligation debt, which is not subject to constitutional limits on borrowing, is
now changing the Commonwealth's debt profile. In recent years, the Commonwealth
has expanded its limited obligation borrowings through various financing
vehicles such as the Virginia Public Building Authority and the Virginia College
Building Authority, and has embarked upon a substantial transportation bonding
program to which certain increases in retail sales and motor vehicle-related
taxes enacted in 1986 are dedicated. The General Fund is the Commonwealth's
major operating fund and accounts for about half of Commonwealth expenditures.
It covers all functions except highways and Federal grant disbursements, for
which there are special revenue funds.
While the Commonwealth has had a long history of sound financial operations,
variations of a cyclical nature have occurred during the past several years.
During fiscal year 1992, financial operations were somewhat more favorable than
expected. Revenues of $5.6 billion exceeded expenditures by approximately $150
million with $44 million in increased revenues and the balance in decreased
expenditures ordered by the Governor in December of 1991. The closing balance at
June 30, 1992 was $195.1 million, of which $142.3 million will be
reappropriated, leaving $52.8 million as an unreserved, undesignated balance,
the first such balance in four years. The fiscal 1993 ending balance for the
General Fund was $331.8 million of which $59.7 is unreserved, undesignated.
Revenues for the 1993 fiscal year were 8.9% higher than fiscal year 1992, a $103
million increase. At the close of the biennium ending June 30, 1994, the Fund
balance amounted to $518.7 million of which $81 million was reserved, including
$79.9 million for the Revenue Stabilization Fund. Preliminary results for fiscal
1995 indicate a general fund surplus of $65 million.
Virginia's economy is generally affected by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of Virginia
are manufacturing (such as electronic equipment, shipbuilding and chemical
products), minerals (chiefly coal), service sector occupations (including
banking and insurance), agriculture and tourism. Unemployment rates are
typically below the national average, but because of a large military and
civilian government employment component, and the related civilian employment, a
substantial decrease in defense or other governmental spending could have a
material adverse effect on both the unemployment rate and the economy of the
Commonwealth in general.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $191,747,922. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$834,074 (equivalent to 0.44% of the Portfolio's average daily net assets for
such period). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $744,841 (equivalent to 0.43% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $378,975 (equivalent
to 0.41% (annualized) of the Portfolio's average daily net assets for such
period). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I of
this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, the Fund paid Eaton Vance advisory fees of $107,723 (equivalent to
0.37% (annualized) of the Fund's average daily net assets for such period). For
the fiscal year ended September 30, 1992, Eaton Vance would have earned, absent
a fee reduction, advisory fees of $97,083 (equivalent to 0.27% (annualized) of
the Fund's average daily net assets for such period). To enhance the net income
of the Fund, Eaton Vance made a reduction of its fee in the amount of $85,897.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, including the Rule 12b-1 Trustees, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
sales commissions of $543,565 to Authorized Firms on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $1,415,731, which amount reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $825,417 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $7,026,000 (which amount was equivalent to 3.7% of the
Fund's net assets on such day). For the fiscal year ended August 31, 1995, the
Fund paid service fee payments under the Plan aggregating $260,460, of which
$259,518 was paid to Authorized Firms and the balance of which was retained by
the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $2,202.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $500. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992 to
February 1, 1993 (when the Fund transferred its assets to the Portfolio) the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995 earned the following compensation in their capacities
as Trustees of the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight .... $666 $2,096(2) $135,000(4)
Samuel L. Hayes, III 643 2,123(3) 150,000(5)
Norton H. Reamer .... 628 2,133 135,000
John L. Thorndike ... 637 2,227 140,000
Jack L. Treynor ..... 686 2,196 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $525 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
David C. Reilly (38) is a Vice President of the Portfolio. Mr. Reilly has served
as a Vice President of the Portfolio since June 19, 1995. Mr. Reilly has been a
Vice President of BMR since 1992 and Eaton Vance since 1991, and is an officer
of various investment companies managed by Eaton Vance or BMR. Prior to joining
Eaton Vance, Mr. Reilly was a Vice President and a municipal bond analyst at
Scudder, Stevens & Clark (1984-1991).
PERFORMANCE 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 July 26, 1991 through August 31, 1995
and for the one year period ended August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN TOTAL RETURN
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE** ------------------------ -----------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund*** 7/26/91* $1,000 $1,291.10 $1,271.10 29.11% 6.43% 27.11% 6.03%
1 Year Ended 8/31/95 8/31/94 $1,000 $1,066.20 $1,016.20 6.62% 6.62% 1.62% 1.62%
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 July 26, 1991.
** No contingent deferred sales charge is imposed on shares purchased more than six years prior to the redemption, shares
acquired through the reinvestment of distributions or 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 Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.63%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.63% would be 7.12%, assuming a
combined federal and State tax rate of 34.97%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.74%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.84%.
The Portfolio's diversification by quality ratings as of September 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 23.1%
Aa or AA 41.4
A 24.0
Baa or BBB 7.2
Ba or BB --
B --
Below B --
Not rated 4.3
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 5.0% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Virginia income tax brackets applicable for 1995: 19.89% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 32.14% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250; 34.97% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 39.68% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 43.07% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
combined brackets are not simply the sum of each of the taxes, as they assume
that State taxes are deducted on the federal income tax return, reducing the
effective combined tax brackets. Tax brackets are calculated using the highest
state rate within each bracket. These brackets do not take into account the
phaseout of personal exemptions and limitation on deductibility of itemized
deductions over certain ranges of income. Investors who do not itemize or who
are subject to such phaseout or limitation will have a higher combined tax
bracket than indicated above. Investors should consult with their tax adviser
for additional information. These illustrations are not meant to imply or
predict any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
19.89% 32.14% 34.97% 39.68% 43.07%
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ........................................ 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent .................................... 6.24 7.37 7.69 8.29 8.78
Certificates of deposit:
Yield ............................................. 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................... 2.60 2.21 2.11 1.96 1.85
</TABLE>
Marathon Virginia
The Tax Free Yield Advantage
(39.68% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
5.00% Tax free investment
8.29% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,289.60) NONE
After-tax
income: $1,960.40 $5,000.00
The 1995 combined tax bracket takes into account federal and Virginia State
income taxes. Assuming the deductibility of Virginia taxes on the federal
return, the bracket is 39.68% 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 represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 15.4% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Virginia Tax Free Fund to EV Marathon Virginia Tax Free
Fund on February 1, 1994 and to EV Marathon Virginia Municipals Fund on January
1, 1996.
<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
and Virginia State income tax laws and tax rates applicable for 1995. It gives
the approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding from
4% to 7%.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND VIRGINIA STATE TAX EXEMPT YIELD OF:
- ---------------------- -------------------- VA STATE -------------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------------------------- ---------------- -------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.89% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.14 5.89 6.63 7.37 8.10 8.84 9.58 10.32
$ 56,551 - $117,950 $ 94,251 - $143,600 34.97 6.15 6.92 7.69 8.46 9.23 10.00 10.76
$117,951 - $256,500 $143,601 - $256,500 39.68 6.63 7.46 8.29 9.12 9.95 10.78 11.60
Over $256,500 Over $256,500 43.07 7.03 7.90 8.78 9.66 10.54 11.42 12.30
<FN>
<F1> Net amount subject to federal and Virginia personal income tax after deductions and exemptions.
<F2> The combined federal and Virginia tax brackets are calculated using the highest Virginia tax rate within each bracket.
Taxpayers with taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields than
indicated above. The combined tax rates assume that Virginia taxes are itemized deductions for federal income tax purposes.
Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. 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 Virginia State income taxes) for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Marathon Virginia Municipals Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and Virginia personal income taxes,
other income received by the Portfolio and allocated to the Fund may be taxable.
The table does not take into account state or local taxes, if any, payable on
Fund distributions except for regular Virginia personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax,
and regular Virginia personal income tax, is treated as a tax preference item
which could subject the recipient to the federal and Virginia alternative
minimum taxes. The illustrations assume that the federal and Virginia
alternative minimum taxes are 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>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
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 MARATHON
MUNICIPALS FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
M-TFC12/1SAI
<PAGE>
[LOGO]
STATEMENT OF
ADDITIONAL
INFORMATION
JANUARY 1, 1996
- ------------------------------
o EV Marathon Alabama
Municipals Fund
o EV Marathon Arkansas
Municipals Fund
o EV Marathon Georgia
Municipals Fund
o EV Marathon Kentucky
Municipals Fund
o EV Marathon Louisiana
Municipals Fund
o EV Marathon Maryland
Municipals Fund
o EV Marathon Missouri
Municipals Fund
o EV Marathon North
Carolina Municipals Fund
o EV Marathon Oregon
Municipals Fund
o EV Marathon South
Carolina Municipals Fund
o EV Marathon Tennessee
Municipals Fund
o EV Marathon Virginia
Municipals Fund
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
INCLUDED IN PART A FOR THE FUNDS LISTED BELOW ARE "FINANCIAL
HIGHLIGHTS" FOR THE PERIOD FROM THE START OF BUSINESS TO THE
FISCAL YEAR ENDED AUGUST 31, 1995:
EV Classic Alabama Tax Free Fund (start of business
December 7, 1993)
EV Classic Arkansas Tax Free Fund (start of business
February 9, 1994)
EV Classic Georgia Tax Free Fund (start of business
December 7, 1993)
EV Classic Kentucky Tax Free Fund (start of business
December 7, 1993)
EV Classic Louisiana Tax Free Fund (start of business
February 14, 1994)
EV Classic Maryland Tax Free Fund (start of business
December 10, 1993)
EV Classic Missouri Tax Free Fund (start of business
December 7, 1993)
EV Classic North Carolina Tax Free Fund (start of business
December 7, 1993)
EV Classic Oregon Tax Free Fund (start of business December
28, 1993)
EV Classic South Carolina Tax Free Fund (start of business
February 14, 1994)
EV Classic Tennessee Tax Free Fund (start of business
December 9, 1992)
EV Classic Virginia Tax Free Fund (start of business
December 17, 1993)
EV Marathon Alabama Tax Free Fund (start of business May 1,
1992)
EV Marathon Arkansas Tax Free Fund (start of business
October 2, 1992)
EV Marathon Georgia Tax Free Fund (start of business
December 23, 1991)
EV Marathon Kentucky Tax Free Fund (start of business
December 23, 1991)
EV Marathon Louisiana Tax Free Fund (start of business
October 2, 1992)
EV Marathon Maryland Tax Free Fund (start of business
February 3, 1992)
EV Marathon Missouri Tax Free Fund (start of business May
1, 1992)
EV Marathon North Carolina Tax Free Fund (start of business
October 23, 1991)
EV Marathon Oregon Tax Free Fund (start of business
December 24, 1991)
EV Marathon South Carolina Tax Free Fund (start of business
October 2, 1992)
EV Marathon Tennessee Tax Free Fund (start of business
August 25, 1992)
EV Marathon Virginia Tax Free Fund (start of business July
26, 1991)
INCLUDED IN PART B:
INCORPORATED BY REFERENCE TO THE ANNUAL REPORTS FOR THE
FUNDS, EACH DATED AUGUST 31, 1995, FILED ELECTRONICALLY
PURSUANT TO SECTION 30(B)(2) OF THE INVESTMENT COMPANY ACT
OF 1940 (ACCESSION NO. 0000950135-95-002234 FOR THE CLASSIC
FUNDS AND ACCESSION NO. 0000950135-95-002233 FOR THE
MARATHON FUNDS) ARE THE FOLLOWING:
<TABLE>
<CAPTION>
<S> <C>
For:
EV Classic Alabama Tax Free Fund EV Marathon Alabama Tax Free Fund
EV Classic Arkansas Tax Free Fund EV Marathon Arkansas Tax Free Fund
EV Classic Georgia Tax Free Fund EV Marathon Georgia Tax Free Fund
EV Classic Kentucky Tax Free Fund EV Marathon Kentucky Tax Free Fund
EV Classic Louisiana Tax Free Fund EV Marathon Louisiana Tax Free Fund
EV Classic Maryland Tax Free Fund EV Marathon Maryland Tax Free Fund
EV Classic Missouri Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Classic North Carolina Tax Free Fund EV Marathon North Carolina Tax Free Fund
EV Classic Oregon Tax Free Fund EV Marathon Oregon Tax Free Fund
EV Classic South Carolina Tax Free Fund EV Marathon South Carolina Tax Free Fund
EV Classic Tennessee Tax Free Fund EV Marathon Tennessee Tax Free Fund
EV Classic Virginia Tax Free Fund EV Marathon Virginia Tax Free Fund
</TABLE>
The Financial Statements for the above-referenced Funds
for the time periods set forth in the Funds' Annual
Reports dated August 31, 1995 include:
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Independent Auditors' Report
The Financial Statements for the Alabama, Arkansas,
Georgia, Kentucky, Louisiana, Maryland, Missouri,
North Carolina, Oregon, South Carolina, Tennessee and
Virginia Tax Free Portfolios for the time periods set
forth in the Funds' Annual Reports dated August 31,
1995 include:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Independent Auditor's Report
(B) EXHIBITS:
(1)(a) Amended and Restated Declaration of Trust of Eaton
Vance Municipals Trust dated January 11, 1993, filed
as Exhibit (1)(a) to Post-Effective Amendment No. 55
and incorporated herein by reference.
(b) Amendment and Restatement of Establishment and
Designation of Series dated June 19, 1995 filed as
Exhibit (1)(b) to Post-Effective Amendment No. 55 and
incorporated herein by reference.
(2)(a) By-Laws as amended October 21, 1987 filed as Exhibit
(2)(a) to Post-Effective Amendment No. 55 and
incorporated herein by reference.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust
dated December 13, 1993 filed as Exhibit (2)(b) to
Post-Effective Amendment No. 55 and incorporated
herein by reference.
(3) Not applicable
(4) Not applicable
(5) Not applicable
(6)(a)(1) Amended Distribution Agreement between Eaton Vance
Municipals Trust (on behalf of its Classic series)
and Eaton Vance Distributors, Inc. with attached
schedules (including Amended Schedule A dated
September 29, 1995) filed as Exhibit (6)(a)(1) to
Post-Effective Amendment No. 55 and incorporated
herein by reference.
(2) Amended Distribution Agreement between Eaton Vance
Municipals Trust (on behalf of its Marathon series)
and Eaton Vance Distributors, Inc. with attached
schedules (including Amended Schedule A dated
September 29, 1995) filed as Exhibit (6)(a)(2) to
Post-Effective Amendment No. 55 and incorporated
herein by reference.
(3) Amended Distribution Agreement between Eaton Vance
Municipals Trust (on behalf of its Traditional
series) and Eaton Vance Distributors, Inc. with
attached schedules (including Amended Schedule A
dated September 29, 1995) filed as Exhibit (6)(a)(3)
to Post-Effective Amendment No. 55 and incorporated
herein by reference.
(b) Selling Group Agreement between Eaton Vance
Distributors, Inc. and Authorized Dealers filed as
Exhibit (6)(b) to Post-Effective Amendment No. 59 to
the Registration Statement of Eaton Vance Growth
Trust (File Nos. 2-22019, 811-1241) and incorporated
herein by reference.
(c) Schedule of Dealer Discounts and Sales Charges filed
as Exhibit (6)(c) to Post- Effective Amendment No. 59
to the Registration Statement of Eaton Vance Growth
Trust (File Nos. 2-22019, 811-1241) and incorporated
herein by reference.
(7) The Securities and Exchange Commission has granted
the Registrant an exemptive order that permits the
Registrant to enter into deferred compensation
arrangements with its independent Trustees. See in
the Matter of Capital Exchange Fund, Inc., Release
No. IC-20671 (November 1, 1994).
(8) Custodian Agreement with Investors Bank & Trust
Company dated October 15, 1992 filed as Exhibit (8)
to Post-Effective Amendment No. 55 and incorporated
herein by reference.
(9)(a) Amended Administrative Services Agreement between
Eaton Vance Municipals Trust (on behalf of each of
its series) and Eaton Vance Management with attached
schedules (including Amended Schedule A dated
September 29, 1995) filed as Exhibit (9)(a) to
Post-Effective Amendment No. 55 and incorporated
herein by reference.
(b) Transfer Agency Agreement dated June 7, 1989 filed as
Exhibit 9(d) to Post- Effective Amendment No. 59 to
the Registration Statement of Eaton Vance Growth
Trust (File Nos. 2-22019, 811-1241) and incorporated
herein by reference.
(c) Amendment to Transfer Agency Agreement dated February
1, 1993 filed as Exhibit 9(e) to Post-Effective
Amendment No. 59 to the Registration Statement of
Eaton Vance Growth Trust (File Nos. 2-22019,
811-1241) and incorporated herein by reference.
(10) Opinion of Counsel filed herewith.
(11)(a) Consent of Independent Certified Public Accountants
for EV Classic Alabama Tax Free Fund, EV Classic
Arkansas 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 Missouri Tax Free Fund, EV Classic
North Carolina Tax Free Fund, EV Classic Oregon Tax
Free Fund, EV Classic South Carolina Tax Free Fund,
EV Classic Tennessee Tax Free Fund and EV Classic
Virginia Tax Free Fund filed herewith.
(b) Consent of Independent Certified Public Accountants
for EV Marathon Alabama Tax Free Fund, EV Marathon
Arkansas 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 Missouri Tax Free Fund, EV
Marathon North Carolina Tax Free Fund, EV Marathon
Oregon Tax Free Fund, EV Marathon South Carolina Tax
Free Fund, EV Marathon Tennessee Tax Free Fund and EV
Marathon Virginia Tax Free 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 as Exhibit (15)(a) to
Post-Effective Amendment No. 55 and incorporated
herein by reference.
(b) Amended Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended,
for Eaton Vance Municipals Trust (on behalf of its
Marathon series) dated June 19, 1995 with attached
schedules (including Amended Schedule A dated
September 29, 1995) filed as Exhibit (15)(b) to
Post-Effective Amendment No. 55 and incorporated
herein by reference.
(c) Amended Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton
Vance Municipals Trust (on behalf of its Traditional
series) dated June 19, 1995 with attached schedules
(including Amended Schedule A dated September 29,
1995) filed as Exhibit (15)(c) to Post-Effective
Amendment No. 55 and incorporated herein by
reference.
(16) Schedules for Computation of Performance Quotations
filed herewith.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust
dated December 29, 1993 filed as Exhibit (17)(a) to
Post-Effective Amendment No. 55 and incorporated
herein by reference.
(b) Power of Attorney for Alabama Tax Free Portfolio,
Arizona Tax Free Portfolio, Arkansas Tax Free
Portfolio, Colorado Tax Free Portfolio, Connecticut
Tax Free Portfolio, Florida Tax Free Portfolio,
Georgia Tax Free Portfolio, Kentucky Tax Free
Portfolio, Louisiana Tax Free Portfolio, Maryland Tax
Free Portfolio, Massachusetts Tax Free Portfolio,
Michigan Tax Free Portfolio, Minnesota Tax Free
Portfolio, Mississippi Tax Free Portfolio, Missouri
Tax Free Portfolio, National Municipals Portfolio,
New Jersey Tax Free Portrfolio, New York Tax Free
Portfolio, North Carolina Tax Free Portfolio, Ohio
Tax Free Portfolio, Oregon Tax Free Portfolio,
Pennsylvania Tax Free Portfolio, Rhode Island Tax
Free Portfolio, South Carolina Tax Free Portfolio,
Tennessee Tax Free Portfolio, Texas Tax Free
Portfolio, Virginia Tax Free Portfolio and West
Virginia Tax Free Portfolio dated December 29, 1993
filed as Exhibit (17)(b) to Post-Effective Amendment
No. 55 and incorporated herein by reference.
(c) Power of Attorney for California Tax Free Portfolio
dated June 19, 1995 filed as Exhibit (17)(c) to
Post-Effective Amendment No. 55 and incorporated
herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest as of October 2, 1995
EV Marathon Alabama Tax Free Fund 2,100
EV Classic Alabama Tax Free Fund 76
EV Marathon Arizona Tax Free Fund 3,194
EV Classic Arizona Tax Free Fund 54
EV Marathon Arkansas Tax Free Fund 2,261
EV Classic Arkansas Tax Free Fund 19
EV Marathon California Municipals Fund 7,980
EV Classic California Municipals Fund 39
EV Marathon Colorado Tax Free Fund 1,198
EV Classic Colorado Tax Free Fund 95
EV Marathon Connecticut Tax Free Fund 4,699
EV Classic Connecticut Tax Free Fund 95
EV Marathon Florida Tax Free Fund 14,202
EV Classic Florida Tax Free Fund 62
EV Marathon Georgia Tax Free Fund 2,999
EV Classic Georgia Tax Free Fund 60
EV Marathon Kentucky Tax Free Fund 3,712
EV Classic Kentucky Tax Free Fund 33
EV Marathon Louisiana Tax Free Fund 615
EV Classic Louisiana Tax Free Fund 37
EV Marathon Maryland Tax Free Fund 3,213
EV Classic Maryland Tax Free Fund 47
EV Marathon Massachusetts Tax Free Fund 7,348
EV Classic Massachusetts Tax Free Fund 53
EV Marathon Michigan Tax Free Fund 4,585
EV Classic Michigan Tax Free Fund 55
EV Marathon Minnesota Tax Free Fund 2,700
EV Classic Minnesota Tax Free Fund 84
EV Marathon Mississippi Tax Free Fund 720
EV Classic Mississippi Tax Free Fund 46
EV Marathon Missouri Tax Free Fund 2,801
EV Classic Missouri Tax Free Fund 112
EV Marathon National Municipals Fund 45,169
EV Classic National Municipals Fund 767
EV Marathon New Jersey Tax Free Fund 11,200
EV Classic New Jersey Tax Free Fund 103
EV Marathon New York Tax Free Fund 15,867
EV Classic New York Tax Free Fund 148
EV Marathon North Carolina Tax Free Fund 4,844
EV Classic North Carolina Tax Free Fund 104
EV Marathon Ohio Tax Free Fund 7,969
EV Classic Ohio Tax Free Fund 53
EV Marathon Oregon Tax Free Fund 3,892
EV Classic Oregon Tax Free Fund 52
EV Marathon Pennsylvania Tax Free Fund 14,432
EV Classic Pennsylvania Tax Free Fund 96
EV Marathon Rhode Island Tax Free Fund 841
EV Classic Rhode Island Tax Free Fund 40
EV Marathon South Carolina Tax Free Fund 1,415
EV Classic South Carolina Tax Free Fund 24
EV Marathon Tennessee Tax Free Fund 1,619
EV Classic Tennessee Tax Free Fund 24
EV Marathon Texas Tax Free Fund 457
EV Classic Texas Tax Free Fund 6
EV Marathon Virginia Tax Free Fund 5,155
EV Classic Virginia Tax Free Fund 39
EV Marathon West Virginia Tax Free Fund 1,217
EV Classic West Virginia Tax Free Fund 24
Massachusetts Municipal Bond Portfolio 36
EV Traditional California Municipals Fund 39
EV Traditional Connecticut Tax Free Fund 34
EV Traditional Florida Tax Free Fund 88
EV Traditional National Municipals Fund 567
EV Traditional New Jersey Tax Free Fund 70
EV Traditional New York Tax Free Fund 120
EV Traditional Pennsylvania Tax Free Fund 45
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.
<PAGE>
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 South Carolina Tax Free Fund
EV Classic Arizona Tax Free Fund EV Classic Special Equities Fund
EV Classic Arkansas Tax Free Fund EV Classic Stock Fund
EV Classic California Limited Maturity EV Classic Tennessee Tax Free Fund
Tax Free Fund EV Classic Texas Tax Free Fund
EV Classic California Municipals Fund EV Classic Total Return Fund
EV Classic Colorado Tax Free Fund EV Classic Virginia Tax Free Fund
EV Classic Connecticut Limited Maturity EV Classic West Virginia Tax Free Fund
Tax Free Fund EV Marathon Alabama Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Marathon Arizona Limited Maturity
EV Classic Florida Insured Tax Free Fund Tax Free Fund
EV Classic Florida Limited Maturity EV Marathon Arizona Tax Free Fund
Tax Free Fund EV Marathon Arkansas Tax Free Fund
EV Classic Florida Tax Free Fund EV Marathon California Limited Maturity
EV Classic Georgia Tax Free Fund Tax Free Fund
EV Classic Government Obligations Fund EV Marathon California Municipals Fund
EV Classic Greater China Growth Fund EV Marathon Colorado Tax Free Fund
EV Classic Growth Fund EV Marathon Connecticut Limited Maturity
EV Classic Hawaii Tax Free Fund Tax Free Fund
EV Classic High Income Fund EV Marathon Connecticut Tax Free Fund
EV Classic Investors Fund EV Marathon Emerging Markets Fund
EV Classic Kansas Tax Free Fund Eaton Vance Equity - Income Trust
EV Classic Kentucky Tax Free Fund EV Marathon Florida Insured Tax Free Fund
EV Classic Louisiana Tax Free Fund EV Marathon Florida Limited Maturity
EV Classic Maryland Tax Free Fund Tax Free Fund
EV Classic Massachusetts Limited Maturity EV Marathon Florida Tax Free Fund
Tax Free Fund EV Marathon Georgia Tax Free Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Gold & Natural Resources Fund
EV Classic Michigan Limited Maturity EV Marathon Government Obligations Fund
Tax Free Fund EV Marathon Greater China Growth Fund
EV Classic Michigan Tax Free Fund EV Marathon Greater India Fund
EV Classic Minnesota Tax Free Fund EV Marathon Growth Fund
EV Classic Mississippi Tax Free Fund EV Marathon Hawaii Tax Free Fund
EV Classic Missouri Tax Free Fund EV Marathon High Income Fund
EV Classic National Limited Maturity Tax Free Fund EV Marathon High Yield Municipals Fund
EV Classic National Municipals Fund EV Marathon Information Age Fund
EV Classic New Jersey Limited Maturity EV Marathon Investors Fund
Tax Free Fund EV Marathon Kansas Tax Free Fund
EV Classic New Jersey Tax Free Fund EV Marathon Kentucky Tax Free Fund
Classic New York Limited Maturity EV Marathon Louisiana Tax Free Fund
Tax Free Fund EV Marathon Maryland Tax Free Fund
EV Classic New York Tax Free Fund EV Marathon Massachusetts Limited Maturity
EV Classic North Carolina Tax Free Fund Tax Free Fund
EV Classic Ohio Limited Maturity Tax Free Fund EV Marathon Massachusetts Tax Free Fund
EV Classic Ohio Tax Free Fund EV Marathon Michigan Limited Maturity
EV Classic Oregon Tax Free Fund Tax Free Fund
EV Classic Pennsylvania Limited Maturity EV Marathon Michigan Tax Free Fund
Tax Free Fund EV Marathon Minnesota Tax Free Fund
EV Classic Pennsylvania Tax Free Fund EV Marathon Mississippi Tax Free Fund
EV Classic Rhode Island Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Classic Senior Floating-Rate Fund EV Marathon National Limited Maturity
EV Classic Strategic Income Fund Tax Free Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EV Marathon National Municipals Fund EV Traditional Florida Insured Tax Free Fund
EV Marathon New Jersey Limited Maturity EV Traditional Florida Limited Maturity
Tax Free Fund Tax Free Fund
EV Marathon New Jersey Tax Free Fund EV Traditional Florida Tax Free Fund
EV Marathon New York Limited Maturity EV Traditional Government Obligations Fund
Tax Free Fund EV Traditional Greater China Growth Fund
EV Marathon New York Tax Free Fund EV Traditional Greater India Fund
EV Marathon North Carolina Limited Maturity EV Traditional Growth Fund
Tax Free Fund EV Traditional High Yield Municipals Fund
EV Marathon North Carolina Tax Free Fund Eaton Vance Income Fund of Boston
EV Marathon Ohio Limited Maturity Tax Free Fund EV Traditional Information Age Fund
EV Marathon Ohio Tax Free Fund EV Traditional Investors Fund
EV Marathon Oregon Tax Free Fund Eaton Vance Municipal Bond Fund L.P.
EV Marathon Pennsylvania Limited Maturity EV Traditional National Limited Maturity
Tax Free Fund Tax Free Fund
EV Marathon Pennsylvania Tax Free Fund EV Traditional National Municipals Fund
EV Marathon Rhode Island Tax Free Fund EV Traditional New Jersey Tax Free Fund
EV Marathon Strategic Income Fund EV Traditional New York Limited Maturity
EV Marathon South Carolina Tax Free Fund Tax Free Fund
EV Marathon Special Equities Fund EV Traditional New York Tax Free Fund
EV Marathon Stock Fund EV Traditional Pennsylvania Tax Free Fund
EV Marathon Tennessee Tax Free Fund EV Traditional Special Equities Fund
EV Marathon Texas Tax Free Fund EV Traditional Stock Fund
EV Marathon Total Return Fund EV Traditional Total Return Fund
EV Marathon Virginia Limited Maturity Eaton Vance Cash Management Fund
Tax Free Fund Eaton Vance Liquid Assets Trust
EV Marathon Virginia Tax Free Fund Eaton Vance Money Market Fund
EV Marathon West Virginia Tax Free Fund Eaton Vance Prime Rate Reserves
EV Traditional California Municipals Fund Eaton Vance Short-Term Treasury Fund
EV Traditional Connecticut Tax Free Fund Eaton Vance Tax Free Reserves
EV Traditional Emerging Markets Fund Massachusetts Municipal Bond Portfolio
</TABLE>
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
BUSINESS ADDRESS WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
------------------ -------------------------- --------------------
<S> <C> <C>
James B. Hawkes* Vice President and Director Vice President and
Trustee
William M. Steul* Vice President and Director None
Wharton P. Whitaker* President and Director None
Howard D. Barr Vice President None
2750 Royal View Court
Oakland, Michigan
Nancy E. Belza Vice President None
463-1 Buena Vista East
San Francisco, California
Chris Berg Vice President None
45 Windsor Lane
Palm Beach Gardens, Florida
H. Day Brigham, Jr.* Vice President None
Susan W. Bukima Vice President None
106 Princess Street
Alexandria, Virginia
Jeffrey W. Butterfield Vice President None
9378 Mirror Road
Columbus, Indiana
Mark A. Carlson* Vice President None
Jeffrey Chernoff Vice President None
115 Concourse West
Bright Waters, New York
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 25th day of October, 1995.
EATON VANCE MUNICIPALS TRUST
By /s/ THOMAS J. FETTER
------------------------------
THOMAS J. FETTER, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
---------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Alabama 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 25th day of
October, 1995.
ALABAMA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
---------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Arkansas 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 25th day of
October, 1995.
ARKANSAS TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
---------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Georgia 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 25th day of
October, 1995.
GEORGIA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
---------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Kentucky 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 25th day of
October, 1995.
KENTUCKY TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
---------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Louisiana 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 25th day of
October, 1995.
LOUISIANA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- --------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Maryland 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 25th day of
October, 1995.
MARYLAND TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- --------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Missouri 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 25th day of
October, 1995.
MISSOURI TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- --------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
North Carolina 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 25th day of
October, 1995.
NORTH CAROLINA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- --------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Oregon 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 25th day of October,
1995.
OREGON TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- --------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
South Carolina 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 25th day of
October, 1995.
SOUTH CAROLINA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- --------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Tennessee 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 25th day of
October, 1995.
TENNESSEE TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- --------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Virginia 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 25th day of
October, 1995.
VIRGINIA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) October 25, 1995
- --------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer October 25, 1995
- --------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee October 25, 1995
- --------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee October 25, 1995
- --------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee October 25, 1995
- --------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee October 25, 1995
- --------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee October 25, 1995
- --------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee October 25, 1995
- --------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- --------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this amendment to the
Registration Statement pursuant to General Instructions E of Form N-1A.
<TABLE>
<CAPTION>
PAGE IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
- ----------- ----------- ----------
<C> <C> <C>
(10) Opinion of Counsel dated October 25, 1995.
(11)(a) Consent of Independent Certified Public Accountants for EV
Classic Alabama Tax Free Fund, EV Classic Arkansas 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 Missouri Tax
Free Fund, EV Classic North Carolina Tax Free Fund, EV
Classic Oregon Tax Free Fund, EV Classic South Carolina Tax
Free Fund, EV Classic Tennessee Tax Free Fund and EV
Classic Virginia Tax Free Fund.
(b) Consent of Independent Certified Public Accountants for EV Marathon
Alabama Tax Free Fund, EV Marathon Arkansas 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 Missouri Tax Free Fund, EV Marathon North Carolina Tax Free
Fund, EV Marathon Oregon Tax Free Fund, EV Marathon South Carolina Tax
Free Fund, EV Marathon Tennessee Tax Free Fund and EV Marathon
Virginia Tax Free Fund.
(16) Schedules for Computation of Performance Quotations.
</TABLE>
Exhibit 99.10
EATON VANCE MANAGEMENT
- --------------------------------------------------------------------------------
24 Federal Street
Boston, MA 02110
(617) 482-8260
October 25, 1995
Eaton Vance Municipals Trust
24 Federal Street
Boston, MA 02110
Gentlemen:
Eaton Vance Municipals Trust (the "Trust") is a Massachusetts business
trust created under a Declaration of Trust dated September 30, 1985 executed and
delivered in Boston, Massachusetts and currently operating under an Amended and
Restated Declaration of Trust dated January 11, 1993 (the "Declaration of
Trust"). I am of the opinion that all legal requirements have been complied with
in the creation of the Trust, and that said Declaration of Trust is legal and
valid.
The Trustees of the Trust have the powers set forth in the Declaration
of Trust, subject to the terms, provisions and conditions therein provided. As
provided in the Declaration of Trust, the interest of shareholders is divided
into shares of beneficial interest without par value, and the number of shares
that may be issued is unlimited. The Trustees may from time to time issue and
sell or cause to be issued and sold shares for cash or for property. All such
shares, when so issued, shall be fully paid and nonassessable by the Trust.
By votes duly adopted, the Trustees of the Trust have authorized the
issuance of shares of beneficial interest, without par value. The Trust intends
to register under the Securities Act of 1933, as amended, 9,988,307 of its
shares of beneficial interest with Post-Effective Amendment No. 56 to its
Registration Statement on Form N-1A (the "Amendment") with the Securities and
Exchange 2Commission.
I have examined originals, or copies, certified or otherwise identified
to my satisfaction, of such certificates, records and other documents as I have
deemed necessary or appropriate for the purpose of this opinion, including the
Declaration of Trust and votes adopted by the Trustees. Based upon the
foregoing, and with respect to Massachusetts law (other than the Massachusetts
Uniform Securities Act), only to the extent that Massachusetts law may be
applicable and without reference to the laws of the other several states or of
the United States of America, I am of the opinion that under existing law:
1. The Trust is a trust with transferable shares of beneficial interest
organized in compliance with the laws of The Commonwealth of Massachusetts, and
the Declaration of Trust is legal and valid under the laws of The Commonwealth
of Massachusetts.
<PAGE>
2. Shares of beneficial interest registered by the Amendment may be
legally and validly issued in accordance with the Declaration of Trust upon
receipt by the Trust of payment in compliance with the Declaration of Trust and,
when so issued and sold, will be fully paid and nonassessable by the Trust.
I am a member of the Massachusetts and New York bars and have acted as
internal legal counsel of the Trust in connection with the Amendment, and I
hereby consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit thereto.
Very truly yours,
/s/H. Day Brigham, Jr.
--------------------------------------
H. Day Brigham, Jr., Esq.
Vice President, Eaton Vance Management
HDB/EGW/drb
b:\munit.opn
<PAGE>
EXHIBIT (11)(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 56 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No.
33-572) on behalf of EV Classic Alabama Tax Free Fund, EV Classic Arkansas
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 Missouri Tax Free Fund, EV Classic North Carolina Tax Free Fund, EV
Classic Oregon Tax Free Fund, EV Classic South Carolina Tax Free Fund, EV
Classic Tennessee Tax Free and EV Classic Virginia Tax Free Fund of our report
dated September 29, 1995, relating to EV Classic Alabama Tax Free Fund, EV
Classic Arkansas Tax Free Fund, EV Classic Georgia Tax Free Fund, EV Classic
Kentucky Tax Free Fund, EV Classic Lousiana Tax Free Fund, EV Classic Maryland
Tax Free Fund, EV Classic Missouri Tax Free Fund, EV Classic North Carolina Tax
Free Fund, EV Classic Oregon Tax Free Fund, EV Classic South Carolina Tax Free
Fund, EV Classic Tennessee Tax Free Fund and EV Classic Virginia Tax Free Fund,
and of our report dated September 29, 1995, relating to Alabama Tax Free
Portfolio, Arkansas Tax Free Portfolio, Georgia Tax Free Portfolio, Kentucky Tax
Free Portfolio, Louisiana Tax Free Portfolio, Maryland Tax Free Portfolio,
Missouri Tax Free Portfolio, North Carolina Tax Free Portfolio, Oregon Tax Free
Portfolio, South Carolina Tax Free Portfolio, Tennessee Tax Free Portfolio and
Virginia Tax Free Portfolio, which reports are included in the Annual Report to
Shareholders for the year ended August 31, 1995 which is incorporated by
reference in the Statement of Additional Information.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
October 27, 1995
Boston, Massachusetts
EXHIBIT (11)(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 56 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No.
33-572) on behalf of EV Marathon Alabama Tax Free Fund, EV Marathon Arkansas 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 Missouri Tax Free Fund, EV Marathon North Carolina Tax Free Fund, EV
Marathon Oregon Tax Free Fund, EV Marathon South Carolina Tax Free Fund, EV
Marathon Tennessee Tax Free Fund and EV Marathon Virginia Tax Free Fund, of our
report dated September 29, 1995 relating to EV Marathon Alabama Tax Free Fund,
EV Marathon Arkansas 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 Missouri Tax Free Fund, EV Marathon
North Carolina Tax Free Fund, EV Marathon Oregon Tax Free Fund, EV Marathon
South Carolina Tax Free Fund, EV Marathon Tennessee Tax Free Fund and EV
Marathon Virginia Tax Free Fund, and of our report dated September 29, 1995,
relating to Alabama Tax Free Portfolio, Arkansas Tax Free Portfolio, Georgia Tax
Free Portfolio, Kentucky Tax Free Portfolio, Louisiana Tax Free Portfolio,
Maryland Tax Free Portfolio, Missouri Tax Free Portfolio, North Carolina Tax
Free Portfolio, Oregon Tax Free Portfolio, South Carolina Tax Free Portfolio,
Tennessee Tax Free Portfolio and Virginia Tax Free Portfolio, which reports are
included in the Annual Report to Shareholders for the year ended August 31, 1995
which is incorporated by reference in the Statement of Additional Information.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
October 27, 1995
Boston, Massachusetts
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC ALABAMA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from May 1, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $1,237.75 $1,237.75 23.78% 6.59% 23.78% 6.59%
1 YEAR ENDED
08/31/95 08/31/94 $1,069.01 $1,059.01 6.90% 6.90% 5.90% 5.90%
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 08/31/95 was 4.43% and was calculated by annualizing the most recent dividend
distribution ($0.033449325) and dividing the result by the current maximum offering price ($9.50).
The effective distribution rate as of 08/31/95 was 4.52% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC ALABAMA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $47,877
Plus Dividend Income Earned:
----------
Equal Gross Income: $47,877
Minus Expenses: $13,296
----------
Equal Net Investment Income: $34,581
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,012,418
----------
Equal Net Investment Income Earned Per Share: $0.0342
Net Asset Value Per Share 8/31/95: $9.50
30 Day Yield*: 4.35%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.30%
Divided by one minus a tax rate of 34.45%: 0.6555
----------
Equal Tax Equivalent Yield***: 6.64%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0342/$9.50)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Alabama tax rate of 34.45%
<PAGE>
Exhibit 16
EV CLASSIC ALABAMA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $47,877
Plus Dividend Income Earned:
----------
Equal Gross Income: $47,877
Minus Expenses: $13,296
----------
Equal Net Investment Income: $34,581
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,012,418
----------
Equal Net Investment Income Earned Per Share: $0.0342
Maximum Offering Price Per Share 8/31/95: $9.50
30 Day Yield*: 4.35%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0342/$9.50)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC ARKANSAS TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,202.79 $1,202.79 20.28% 6.53% 20.28% 6.53%
1 YEAR ENDED
08/31/95 08/31/94 $1,055.17 $1,045.17 5.52% 5.52% 4.52% 4.52%
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 08/31/95 was 4.48% and was calculated by annualizing the most recent dividend
distribution ($0.034164407) and dividing the result by the current maximum offering price ($9.59).
The effective distribution rate as of 08/31/95 was 4.58% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC ARKANSAS TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $2,531
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,531
Minus Expenses: $625
----------
Equal Net Investment Income: $1,906
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 55,230
----------
Equal Net Investment Income Earned Per Share: $0.0345
Net Asset Value Per Share 8/31/95: $9.59
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 35.83%: 0.6417
----------
Equal Tax Equivalent Yield***: 6.79%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0345/$9.59)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Arkansas tax rate of 35.83%
<PAGE>
Exhibit 16
EV CLASSIC ARKANSAS TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $2,531
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,531
Minus Expenses: $625
----------
Equal Net Investment Income: $1,906
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 55,230
----------
Equal Net Investment Income Earned Per Share: $0.0345
Maximum Offering Price Per Share 8/31/95: $9.59
30 Day Yield*: 4.36%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0345/$9.59)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC GEORGIA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 23, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/23/91 $1,190.05 $1,190.05 19.01% 4.83% 19.01% 4.83%
1 YEAR ENDED
08/31/95 08/31/94 $1,046.01 $1,036.04 4.60% 4.60% 3.60% 3.60%
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 08/31/95 was 4.57% and was calculated by annualizing the most recent dividend
distribution ($0.033369865) and dividing the result by the current maximum offering price ($9.19).
The effective distribution rate as of 08/31/95 was 4.67% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC GEORGIA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $12,600
Plus Dividend Income Earned:
----------
Equal Gross Income: $12,600
Minus Expenses: $2,841
----------
Equal Net Investment Income: $9,759
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 269,906
----------
Equal Net Investment Income Earned Per Share: $0.0362
Net Asset Value Per Share 8/31/95: $9.19
30 Day Yield*: 4.77%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.91%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 7.35%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0362/$9.19)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Georgia tax rate of 35.14%
<PAGE>
Exhibit 16
EV CLASSIC GEORGIA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $12,600
Plus Dividend Income Earned:
----------
Equal Gross Income: $12,600
Minus Expenses: $2,841
----------
Equal Net Investment Income: $9,759
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 269,906
----------
Equal Net Investment Income Earned Per Share: $0.0362
Maximum Offering Price Per Share 8/31/95: $9.19
30 Day Yield*: 4.77%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0362/$9.19)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC KENTUCKY TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 23, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/23/91 $1,213.74 $1,213.74 21.37% 5.39% 21.37% 5.39%
1 YEAR ENDED
08/31/95 08/31/94 $1,062.94 $1,052.94 6.29% 6.29% 5.29% 5.29%
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 08/31/95 was 4.61% and was calculated by annualizing the most recent dividend
distribution ($0.034164407) and dividing the result by the current maximum offering price ($9.32).
The effective distribution rate as of 08/31/95 was 4.71% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC KENTUCKY TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $8,937
Plus Dividend Income Earned:
----------
Equal Gross Income: $8,937
Minus Expenses: $2,273
----------
Equal Net Investment Income: $6,664
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 194,800
----------
Equal Net Investment Income Earned Per Share: $0.0342
Net Asset Value Per Share 8/31/95: $9.32
30 Day Yield*: 4.45%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.45%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 6.86%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0342/$9.32)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kentucky tax rate of 35.14%
<PAGE>
Exhibit 16
EV CLASSIC KENTUCKY TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $8,937
Plus Dividend Income Earned:
----------
Equal Gross Income: $8,937
Minus Expenses: $2,273
----------
Equal Net Investment Income: $6,664
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 194,800
----------
Equal Net Investment Income Earned Per Share: $0.0342
Maximum Offering Price Per Share 8/31/95: $9.32
30 Day Yield*: 4.45%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0342/$9.32)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC LOUISIANA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,213.00 $1,213.00 21.30% 6.84% 21.30% 6.84%
1 YEAR ENDED
08/31/95 08/31/94 $1,048.78 $1,038.81 4.88% 4.88% 3.88% 3.88%
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 08/31/95 was 4.87% and was calculated by annualizing the most recent dividend
distribution ($0.036547946) and dividing the result by the current maximum offering price ($9.44).
The effective distribution rate as of 08/31/95 was 4.98% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC LOUISIANA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $12,399
Plus Dividend Income Earned:
----------
Equal Gross Income: $12,399
Minus Expenses: $2,893
----------
Equal Net Investment Income: $9,506
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 257,315
----------
Equal Net Investment Income Earned Per Share: $0.0369
Net Asset Value Per Share 8/31/95: $9.44
30 Day Yield*: 4.74%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.87%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 7.31%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0369/$9.44)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Louisiana tax rate of 35.14%
<PAGE>
Exhibit 16
EV CLASSIC LOUISIANA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $12,399
Plus Dividend Income Earned:
----------
Equal Gross Income: $12,399
Minus Expenses: $2,893
----------
Equal Net Investment Income: $9,506
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 257,315
----------
Equal Net Investment Income Earned Per Share: $0.0369
Maximum Offering Price Per Share 8/31/95: $9.44
30 Day Yield*: 4.74%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0369/$9.44)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC MARYLAND TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from February 3, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 02/03/92 $1,240.70 $1,240.70 24.07% 6.21% 24.07% 6.21%
1 YEAR ENDED
08/31/95 08/31/94 $1,069.09 $1,059.09 6.91% 6.91% 5.91% 5.91%
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 08/31/95 was 4.53% and was calculated by annualizing the most recent dividend
distribution ($0.033767136) and dividing the result by the current maximum offering price ($9.38).
The effective distribution rate as of 08/31/95 was 4.63% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC MARYLAND TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $4,612
Plus Dividend Income Earned:
----------
Equal Gross Income: $4,612
Minus Expenses: $1,121
----------
Equal Net Investment Income: $3,491
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 100,347
----------
Equal Net Investment Income Earned Per Share: $0.0348
Net Asset Value Per Share 8/31/95: $9.38
30 Day Yield*: 4.49%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.51%
Divided by one minus a tax rate of 36.52%: 0.6348
----------
Equal Tax Equivalent Yield***: 7.07%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0348/$9.38)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Maryland tax rate of 36.52%
<PAGE>
Exhibit 16
EV CLASSIC MARYLAND TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $4,612
Plus Dividend Income Earned:
----------
Equal Gross Income: $4,612
Minus Expenses: $1,121
----------
Equal Net Investment Income: $3,491
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 100,347
----------
Equal Net Investment Income Earned Per Share: $0.0348
Maximum Offering Price Per Share 8/31/95: $9.38
30 Day Yield*: 4.49%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0348/$9.38)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC MISSOURI TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from May 1, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $1,257.14 $1,257.14 25.71% 7.09% 25.71% 7.09%
1 YEAR ENDED
08/31/95 08/31/94 $1,070.79 $1,060.79 7.08% 7.08% 6.08% 6.08%
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 08/31/95 was 4.46% and was calculated by annualizing the most recent dividend
distribution ($0.033608245) and dividing the result by the current maximum offering price ($9.48).
The effective distribution rate as of 08/31/95 was 4.55% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC MISSOURI TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $15,519
Plus Dividend Income Earned:
----------
Equal Gross Income: $15,519
Minus Expenses: $4,484
----------
Equal Net Investment Income: $11,035
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 330,775
----------
Equal Net Investment Income Earned Per Share: $0.0334
Net Asset Value Per Share 8/31/95: $9.48
30 Day Yield*: 4.26%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.17%
Divided by one minus a tax rate of 35.14%: 0.6768
----------
Equal Tax Equivalent Yield***: 6.29%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0334/$9.48)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Missouri tax rate of 35.14%
<PAGE>
Exhibit 16
EV CLASSIC MISSOURI TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $15,519
Plus Dividend Income Earned:
----------
Equal Gross Income: $15,519
Minus Expenses: $4,484
----------
Equal Net Investment Income: $11,035
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 330,775
----------
Equal Net Investment Income Earned Per Share: $0.0334
Maximum Offering Price Per Share 8/31/95: $9.48
30 Day Yield*: 4.26%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0334/$9.48)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC NORTH CAROLINA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 23, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/23/91 $1,235.59 $1,235.59 23.56% 5.63% 23.56% 5.63%
1 YEAR ENDED
08/31/95 08/31/94 $1,050.18 $1,040.18 5.02% 5.02% 4.02% 4.02%
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 08/31/95 was 4.63% and was calculated by annualizing the most recent dividend
distribution ($0.034164407) and dividing the result by the current maximum offering price ($9.28).
The effective distribution rate as of 08/31/95 was 4.73% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC NORTH CAROLINA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $30,250
Plus Dividend Income Earned:
----------
Equal Gross Income: $30,250
Minus Expenses: $7,138
----------
Equal Net Investment Income: $23,112
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 658,026
----------
Equal Net Investment Income Earned Per Share: $0.0351
Net Asset Value Per Share 8/31/95: $9.27
30 Day Yield*: 4.58%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.64%
Divided by one minus a tax rate of 36.35%: 0.6365
----------
Equal Tax Equivalent Yield***: 7.20%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0351/$9.28)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and North Carolina tax rate of 36.35%
<PAGE>
Exhibit 16
EV CLASSIC NORTH CAROLINA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $30,250
Plus Dividend Income Earned:
----------
Equal Gross Income: $30,250
Minus Expenses: $7,138
----------
Equal Net Investment Income: $23,112
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 658,026
----------
Equal Net Investment Income Earned Per Share: $0.0351
Maximum Offering Price Per Share 8/31/95: $9.27
30 Day Yield*: 4.58%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0351/$9.28)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC OREGON TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 24, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/24/91 $1,267.16 $1,267.16 26.72% 6.63% 26.72% 6.63%
1 YEAR ENDED
08/31/95 08/31/94 $1,071.08 $1,061.08 7.11% 7.11% 6.11% 6.11%
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 08/31/95 was 4.40% and was calculated by annualizing the most recent dividend
distribution ($0.032972623) and dividing the result by the current maximum offering price ($9.44).
The effective distribution rate as of 08/31/95 was 4.49% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC OREGON TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $4,822
Plus Dividend Income Earned:
----------
Equal Gross Income: $4,822
Minus Expenses: $1,279
----------
Equal Net Investment Income: $3,543
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 106,732
----------
Equal Net Investment Income Earned Per Share: $0.0332
Net Asset Value Per Share 8/31/95: $9.44
30 Day Yield*: 4.26%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.17%
Divided by one minus a tax rate of 37.21%: 0.6279
----------
Equal Tax Equivalent Yield***: 6.78%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0332/$9.44)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Oregon tax rate of 37.21%
<PAGE>
Exhibit 16
EV CLASSIC OREGON TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $4,822
Plus Dividend Income Earned:
----------
Equal Gross Income: $4,822
Minus Expenses: $1,279
----------
Equal Net Investment Income: $3,543
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 106,732
----------
Equal Net Investment Income Earned Per Share: $0.0332
Maximum Offering Price Per Share 8/31/95: $9.44
30 Day Yield*: 4.26%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0332/$9.44)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC SOUTH CAROLINA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,170.68 $1,170.68 17.07% 5.54% 17.07% 5.54%
1 YEAR ENDED
08/31/95 08/31/94 $1,053.78 $1,043.78 5.38% 5.38% 4.38% 4.38%
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 08/31/95 was 4.46% and was calculated by annualizing the most recent dividend
distribution ($0.033369865) and dividing the result by the current maximum offering price ($9.42).
The effective distribution rate as of 08/31/95 was 4.55% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC SOUTH CAROLINA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $6,218
Plus Dividend Income Earned:
----------
Equal Gross Income: $6,218
Minus Expenses: $1,499
----------
Equal Net Investment Income: $4,719
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 133,720
----------
Equal Net Investment Income Earned Per Share: $0.0353
Net Asset Value Per Share 8/31/95: $9.42
30 Day Yield*: 4.54%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.58%
Divided by one minus a tax rate of 35.83%: 0.6417
----------
Equal Tax Equivalent Yield***: 7.07%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0353/$9.42)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and South Carolina tax rate of 35.83%
<PAGE>
Exhibit 16
EV CLASSIC SOUTH CAROLINA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $6,218
Plus Dividend Income Earned:
----------
Equal Gross Income: $6,218
Minus Expenses: $1,499
----------
Equal Net Investment Income: $4,719
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 133,720
----------
Equal Net Investment Income Earned Per Share: $0.0353
Maximum Offering Price Per Share 8/31/95: $9.42
30 Day Yield*: 4.54%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0353/$9.42)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC TENNESSEE TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from August 25, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/25/92 $1,196.21 $1,196.21 19.62% 6.11% 19.62% 6.11%
1 YEAR ENDED
08/31/95 08/31/94 $1,063.24 $1,053.24 6.32% 6.32% 5.32% 5.32%
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 08/31/95 was 4.66% and was calculated by annualizing the most recent dividend
distribution ($0.034561649) and dividing the result by the current maximum offering price ($9.33).
The effective distribution rate as of 08/31/95 was 4.76% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC TENNESSEE TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $5,379
Plus Dividend Income Earned:
----------
Equal Gross Income: $5,379
Minus Expenses: $1,322
----------
Equal Net Investment Income: $4,057
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 116,429
----------
Equal Net Investment Income Earned Per Share: $0.0348
Net Asset Value Per Share 8/31/95: $9.33
30 Day Yield*: 4.52%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.55%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 6.97%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0348/$9.33)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Tennessee tax rate of 35.14%
<PAGE>
Exhibit 16
EV CLASSIC TENNESSEE TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $5,379
Plus Dividend Income Earned:
----------
Equal Gross Income: $5,379
Minus Expenses: $1,322
----------
Equal Net Investment Income: $4,057
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 116,429
----------
Equal Net Investment Income Earned Per Share: $0.0348
Maximum Offering Price Per Share 8/31/95: $9.33
30 Day Yield*: 4.52%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0348/$9.33)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC VIRGINIA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from July 26, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 07/26/91 $1,289.68 $1,289.68 28.97% 6.40% 28.97% 6.40%
1 YEAR ENDED
08/31/95 08/31/94 $1,065.11 $1,055.11 6.51% 6.51% 5.51% 5.51%
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 08/31/95 was 4.69% and was calculated by annualizing the most recent dividend
distribution ($0.034800000) and dividing the result by the current maximum offering price ($9.33).
The effective distribution rate as of 08/31/95 was 4.80% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC VIRGINIA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $7,374
Plus Dividend Income Earned:
----------
Equal Gross Income: $7,374
Minus Expenses: $1,860
----------
Equal Net Investment Income: $5,514
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 159,479
----------
Equal Net Investment Income Earned Per Share: $0.0346
Net Asset Value Per Share 8/31/95: $9.33
30 Day Yield*: 4.49%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.51%
Divided by one minus a tax rate of 34.97%: 0.6503
----------
Equal Tax Equivalent Yield***: 6.90%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0346/$9.33)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Virginia tax rate of 34.97%
<PAGE>
Exhibit 16
EV CLASSIC VIRGINIA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $7,374
Plus Dividend Income Earned:
----------
Equal Gross Income: $7,374
Minus Expenses: $1,860
----------
Equal Net Investment Income: $5,514
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 159,479
----------
Equal Net Investment Income Earned Per Share: $0.0346
Maximum Offering Price Per Share 8/31/95: $9.33
30 Day Yield*: 4.49%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0346/$9.33)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON ALABAMA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from May 1, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $1,242.75 $1,212.75 24.28% 6.72% 21.28% 5.95%
1 YEAR ENDED
08/31/95 08/31/94 $1,073.81 $1,023.81 7.38% 7.38% 2.38% 2.38%
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 08/31/95 was 4.65% and was calculated by annualizing the most recent dividend
distribution ($0.038534272) and dividing the result by the current maximum offering price ($10.44).
The effective distribution rate as of 08/31/95 was 4.75% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON ALABAMA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $542,655
Plus Dividend Income Earned:
----------
Equal Gross Income: $542,655
Minus Expenses: $135,815
----------
Equal Net Investment Income: $406,840
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 10,427,626
----------
Equal Net Investment Income Earned Per Share: $0.0390
Net Asset Value Per Share 8/31/95: $10.44
30 Day Yield*: 4.53%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.57%
Divided by one minus a tax rate of 34.45%: 0.6555
----------
Equal Tax Equivalent Yield***: 6.91%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0390/$10.44)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Alabama tax rate of 34.45%
<PAGE>
Exhibit 16
EV MARATHON ALABAMA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $542,655
Plus Dividend Income Earned:
----------
Equal Gross Income: $542,655
Minus Expenses: $135,815
----------
Equal Net Investment Income: $406,840
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 10,427,626
----------
Equal Net Investment Income Earned Per Share: $0.0390
Maximum Offering Price Per Share 8/31/95: $10.44
30 Day Yield*: 4.53%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0390/$10.44)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON ARKANSAS TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,189.89 $1,149.89 18.99% 6.13% 14.99% 4.90%
1 YEAR ENDED
08/31/95 08/31/94 $1,061.54 $1,011.54 6.15% 6.15% 1.15% 1.15%
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 08/31/95 was 4.68% and was calculated by annualizing the most recent dividend
distribution ($0.038137001) and dividing the result by the current maximum offering price ($10.25).
The effective distribution rate as of 08/31/95 was 4.79% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON ARKANSAS TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $401,991
Plus Dividend Income Earned:
----------
Equal Gross Income: $401,991
Minus Expenses: $100,999
----------
Equal Net Investment Income: $300,992
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 7,889,533
----------
Equal Net Investment Income Earned Per Share: $0.0382
Net Asset Value Per Share 8/31/95: $10.25
30 Day Yield*: 4.51%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.54%
Divided by one minus a tax rate of 35.83%: 0.6417
----------
Equal Tax Equivalent Yield***: 7.03%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0382/$10.25)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Arkansas tax rate of 35.83%
<PAGE>
Exhibit 16
EV MARATHON ARKANSAS TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $401,991
Plus Dividend Income Earned:
----------
Equal Gross Income: $401,991
Minus Expenses: $100,999
----------
Equal Net Investment Income: $300,992
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 7,889,533
----------
Equal Net Investment Income Earned Per Share: $0.0382
Maximum Offering Price Per Share 8/31/95: $10.25
30 Day Yield*: 4.51%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0382/$10.25)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON GEORGIA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 23, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/23/91 $1,199.33 $1,169.96 19.93% 5.05% 17.00% 4.35%
1 YEAR ENDED
08/31/95 08/31/94 $1,049.02 $999.07 4.90% 4.90% -0.09% -0.09%
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 08/31/95 was 4.65% and was calculated by annualizing the most recent dividend
distribution ($0.036150704) and dividing the result by the current maximum offering price ($9.79).
The effective distribution rate as of 08/31/95 was 4.75% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON GEORGIA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $619,885
Plus Dividend Income Earned:
----------
Equal Gross Income: $619,885
Minus Expenses: $146,943
----------
Equal Net Investment Income: $472,942
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 12,344,262
----------
Equal Net Investment Income Earned Per Share: $0.0383
Net Asset Value Per Share 8/31/95: $9.79
30 Day Yield*: 4.74%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.87%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 7.31%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0383/$9.79)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Georgia tax rate of 35.14%
<PAGE>
Exhibit 16
EV MARATHON GEORGIA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $619,885
Plus Dividend Income Earned:
----------
Equal Gross Income: $619,885
Minus Expenses: $146,943
----------
Equal Net Investment Income: $472,942
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 12,344,262
----------
Equal Net Investment Income Earned Per Share: $0.0383
Maximum Offering Price Per Share 8/31/95: $9.79
30 Day Yield*: 4.74%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0383/$9.79)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON KENTUCKY TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 23, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/23/91 $1,222.96 $1,192.99 22.30% 5.61% 19.30% 4.90%
1 YEAR ENDED
08/31/95 08/31/94 $1,066.13 $1,016.13 6.61% 6.61% 1.61% 1.61%
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 08/31/95 was 4.70% and was calculated by annualizing the most recent dividend
distribution ($0.037342488) and dividing the result by the current maximum offering price ($9.99).
The effective distribution rate as of 08/31/95 was 4.81% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON KENTUCKY TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $719,915
Plus Dividend Income Earned:
----------
Equal Gross Income: $719,915
Minus Expenses: $177,215
----------
Equal Net Investment Income: $542,700
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 14,368,085
----------
Equal Net Investment Income Earned Per Share: $0.0378
Net Asset Value Per Share 8/31/95: $9.99
30 Day Yield*: 4.58%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.64%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 7.06%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0378/$9.99)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kentucky tax rate of 35.14%
<PAGE>
Exhibit 16
EV MARATHON KENTUCKY TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $719,915
Plus Dividend Income Earned:
----------
Equal Gross Income: $719,915
Minus Expenses: $177,215
----------
Equal Net Investment Income: $542,700
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 14,368,085
----------
Equal Net Investment Income Earned Per Share: $0.0378
Maximum Offering Price Per Share 8/31/95: $9.99
30 Day Yield*: 4.58%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0378/$9.99)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON LOUISIANA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,175.86 $1,135.94 17.59% 5.70% 13.59% 4.46%
1 YEAR ENDED
08/31/95 08/31/94 $1,050.78 $1,000.93 5.08% 5.08% 0.09% 0.09%
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 08/31/95 was 4.98% and was calculated by annualizing the most recent dividend
distribution ($0.039487676) and dividing the result by the current maximum offering price ($9.98).
The effective distribution rate as of 08/31/95 was 5.10% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON LOUISIANA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $163,114
Plus Dividend Income Earned:
----------
Equal Gross Income: $163,114
Minus Expenses: $29,496
----------
Equal Net Investment Income: $133,618
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,178,476
----------
Equal Net Investment Income Earned Per Share: $0.0420
Net Asset Value Per Share 8/31/95: $9.98
30 Day Yield*: 5.11%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 7.41%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 7.88%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0420/$9.98)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Louisiana tax rate of 35.14%
<PAGE>
Exhibit 16
EV MARATHON LOUISIANA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $163,114
Plus Dividend Income Earned:
----------
Equal Gross Income: $163,114
Minus Expenses: $29,496
----------
Equal Net Investment Income: $133,618
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,178,476
----------
Equal Net Investment Income Earned Per Share: $0.0420
Maximum Offering Price Per Share 8/31/95: $9.98
30 Day Yield*: 5.11%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0420/$9.98)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON MARYLAND TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from February 3, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 02/03/92 $1,234.00 $1,204.00 23.40% 6.05% 20.40% 5.32%
1 YEAR ENDED
08/31/95 08/31/94 $1,067.09 $1,017.09 6.71% 6.71% 1.71% 1.71%
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 08/31/95 was 4.75% and was calculated by annualizing the most recent dividend
distribution ($0.038610972) and dividing the result by the current maximum offering price ($10.23).
The effective distribution rate as of 08/31/95 was 4.86% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON MARYLAND TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $575,978
Plus Dividend Income Earned:
----------
Equal Gross Income: $575,978
Minus Expenses: $139,753
----------
Equal Net Investment Income: $436,225
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 11,176,828
----------
Equal Net Investment Income Earned Per Share: $0.0390
Net Asset Value Per Share 8/31/95: $10.23
30 Day Yield*: 4.62%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.70%
Divided by one minus a tax rate of 36.52%: 0.6348
----------
Equal Tax Equivalent Yield***: 7.28%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0390/$10.23)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Maryland tax rate of 36.52%
<PAGE>
Exhibit 16
EV MARATHON MARYLAND TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $575,978
Plus Dividend Income Earned:
----------
Equal Gross Income: $575,978
Minus Expenses: $139,753
----------
Equal Net Investment Income: $436,225
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 11,176,828
----------
Equal Net Investment Income Earned Per Share: $0.0390
Maximum Offering Price Per Share 8/31/95: $10.23
30 Day Yield*: 4.62%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0390/$10.23)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON MISSOURI TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from May 1, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $1,257.58 $1,227.58 25.76% 7.10% 22.76% 6.33%
1 YEAR ENDED
08/31/95 08/31/94 $1,078.18 $1,028.18 7.82% 7.82% 2.82% 2.82%
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 08/31/95 was 4.58% and was calculated by annualizing the most recent dividend
distribution ($0.038216461) and dividing the result by the current maximum offering price ($10.51).
The effective distribution rate as of 08/31/95 was 4.67% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON MISSOURI TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $449,628
Plus Dividend Income Earned:
----------
Equal Gross Income: $449,628
Minus Expenses: $111,629
----------
Equal Net Investment Income: $337,999
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 8,574,470
----------
Equal Net Investment Income Earned Per Share: $0.0394
Net Asset Value Per Share 8/31/95: $10.51
30 Day Yield*: 4.54%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.58%
Divided by one minus a tax rate of 35.14%: 0.6768
----------
Equal Tax Equivalent Yield***: 6.71%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0394/$10.51)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Missouri tax rate of 35.14%
<PAGE>
Exhibit 16
EV MARATHON MISSOURI TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $449,628
Plus Dividend Income Earned:
----------
Equal Gross Income: $449,628
Minus Expenses: $111,629
----------
Equal Net Investment Income: $337,999
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 8,574,470
----------
Equal Net Investment Income Earned Per Share: $0.0394
Maximum Offering Price Per Share 8/31/95: $10.51
30 Day Yield*: 4.54%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0394/$10.51)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON NORTH CAROLINA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 23, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/23/91 $1,230.52 $1,200.64 23.05% 5.52% 20.06% 4.85%
1 YEAR ENDED
08/31/95 08/31/94 $1,050.26 $1,000.31 5.03% 5.03% 0.03% 0.03%
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 08/31/95 was 4.77% and was calculated by annualizing the most recent dividend
distribution ($0.037739730) and dividing the result by the current maximum offering price ($9.96).
The effective distribution rate as of 08/31/95 was 4.88% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON NORTH CAROLINA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $940,141
Plus Dividend Income Earned:
----------
Equal Gross Income: $940,141
Minus Expenses: $230,969
----------
Equal Net Investment Income: $709,172
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 18,961,350
----------
Equal Net Investment Income Earned Per Share: $0.0374
Net Asset Value Per Share 8/31/95: $9.96
30 Day Yield*: 4.55%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.59%
Divided by one minus a tax rate of 36.35%: 0.6365
----------
Equal Tax Equivalent Yield***: 7.15%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0374/$9.96)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and North Carolina tax rate of 36.35%
<PAGE>
Exhibit 16
EV MARATHON NORTH CAROLINA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $940,141
Plus Dividend Income Earned:
----------
Equal Gross Income: $940,141
Minus Expenses: $230,969
----------
Equal Net Investment Income: $709,172
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 18,961,350
----------
Equal Net Investment Income Earned Per Share: $0.0374
Maximum Offering Price Per Share 8/31/95: $9.96
30 Day Yield*: 4.55%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0374/$9.96)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON OREGON TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 24, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/24/91 $1,259.12 $1,229.12 25.91% 6.44% 22.91% 5.75%
1 YEAR ENDED
08/31/95 08/31/94 $1,072.20 $1,022.20 7.22% 7.22% 2.22% 2.22%
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 08/31/95 was 4.48% and was calculated by annualizing the most recent dividend
distribution ($0.036706866) and dividing the result by the current maximum offering price ($10.31).
The effective distribution rate as of 08/31/95 was 4.57% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON OREGON TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $713,926
Plus Dividend Income Earned:
----------
Equal Gross Income: $713,926
Minus Expenses: $178,012
----------
Equal Net Investment Income: $535,914
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 14,112,342
----------
Equal Net Investment Income Earned Per Share: $0.0380
Net Asset Value Per Share 8/31/95: $10.31
30 Day Yield*: 4.46%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.46%
Divided by one minus a tax rate of 37.21%: 0.6279
----------
Equal Tax Equivalent Yield***: 7.10%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0380/$10.31)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Oregon tax rate of 37.21%
<PAGE>
Exhibit 16
EV MARATHON OREGON TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $713,926
Plus Dividend Income Earned:
----------
Equal Gross Income: $713,926
Minus Expenses: $178,012
----------
Equal Net Investment Income: $535,914
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 14,112,342
----------
Equal Net Investment Income Earned Per Share: $0.0380
Maximum Offering Price Per Share 8/31/95: $10.31
30 Day Yield*: 4.46%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0380/$10.31)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON SOUTH CAROLINA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,157.21 $1,117.21 15.72% 5.13% 11.72% 3.87%
1 YEAR ENDED
08/31/95 08/31/94 $1,056.38 $1,006.38 5.64% 5.64% 0.64% 0.64%
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 08/31/95 was 4.67% and was calculated by annualizing the most recent dividend
distribution ($0.037104137) and dividing the result by the current maximum offering price ($10.00).
The effective distribution rate as of 08/31/95 was 4.77% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON SOUTH CAROLINA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $300,745
Plus Dividend Income Earned:
----------
Equal Gross Income: $300,745
Minus Expenses: $71,699
----------
Equal Net Investment Income: $229,046
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 5,997,255
----------
Equal Net Investment Income Earned Per Share: $0.0382
Net Asset Value Per Share 8/31/95: $10.00
30 Day Yield*: 4.63%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.71%
Divided by one minus a tax rate of 35.83%: 0.6417
----------
Equal Tax Equivalent Yield***: 7.22%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0382/$10.00)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and South Carolina tax rate of 35.83%
<PAGE>
Exhibit 16
EV MARATHON SOUTH CAROLINA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $300,745
Plus Dividend Income Earned:
----------
Equal Gross Income: $300,745
Minus Expenses: $71,699
----------
Equal Net Investment Income: $229,046
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 5,997,255
----------
Equal Net Investment Income Earned Per Share: $0.0382
Maximum Offering Price Per Share 8/31/95: $10.00
30 Day Yield*: 4.63%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0382/$10.00)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON TENNESSEE TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from August 25, 1992 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/25/92 $1,193.63 $1,163.63 19.36% 6.04% 16.36% 5.15%
1 YEAR ENDED
08/31/95 08/31/94 $1,061.20 $1,011.20 6.12% 6.12% 1.12% 1.12%
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 08/31/95 was 4.75% and was calculated by annualizing the most recent dividend
distribution ($0.038137001) and dividing the result by the current maximum offering price ($10.11).
The effective distribution rate as of 08/31/95 was 4.85% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON TENNESSEE TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $290,115
Plus Dividend Income Earned:
----------
Equal Gross Income: $290,115
Minus Expenses: $66,987
----------
Equal Net Investment Income: $223,128
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 5,680,401
----------
Equal Net Investment Income Earned Per Share: $0.0393
Net Asset Value Per Share 8/31/95: $10.11
30 Day Yield*: 4.71%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.83%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 7.26%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0393/$10.11)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Tennessee tax rate of 35.14%
<PAGE>
Exhibit 16
EV MARATHON TENNESSEE TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $290,115
Plus Dividend Income Earned:
----------
Equal Gross Income: $290,115
Minus Expenses: $66,987
----------
Equal Net Investment Income: $223,128
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 5,680,401
----------
Equal Net Investment Income Earned Per Share: $0.0393
Maximum Offering Price Per Share 8/31/95: $10.11
30 Day Yield*: 4.71%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0393/$10.11)+1)-1]
<PAGE>
EXHIBIT 16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON VIRGINIA TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from July 26, 1991 through August 31, 1995 and for the 1 year period ended
August 31, 1995.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/95 ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 07/26/91 $1,291.10 $1,271.10 29.11% 6.43% 27.11% 6.03%
1 YEAR ENDED
08/31/95 08/31/94 $1,066.20 $1,016.20 6.62% 6.62% 1.62% 1.62%
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 08/31/95 was 4.74% and was calculated by annualizing the most recent dividend
distribution ($0.038613703) and dividing the result by the current maximum offering price ($10.26).
The effective distribution rate as of 08/31/95 was 4.84% and was calculated by dividing the distribtion rate by the compounding
period (365/29), 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:
(365/29)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/29))+1] - 1
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON VIRGINIA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 8/31/95:
Interest Income Earned: $962,875
Plus Dividend Income Earned:
----------
Equal Gross Income: $962,875
Minus Expenses: $232,631
----------
Equal Net Investment Income: $730,244
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 18,616,960
----------
Equal Net Investment Income Earned Per Share: $0.0392
Net Asset Value Per Share 8/31/95: $10.26
30 Day Yield*: 4.63%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.71%
Divided by one minus a tax rate of 34.97%: 0.6503
----------
Equal Tax Equivalent Yield***: 7.12%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0392/$10.26)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Virginia tax rate of 34.97%
<PAGE>
Exhibit 16
EV MARATHON VIRGINIA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 8/31/95:
Interest Income Earned: $962,875
Plus Dividend Income Earned:
----------
Equal Gross Income: $962,875
Minus Expenses: $232,631
----------
Equal Net Investment Income: $730,244
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 18,616,960
----------
Equal Net Investment Income Earned Per Share: $0.0392
Maximum Offering Price Per Share 8/31/95: $10.26
30 Day Yield*: 4.63%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0392/$10.26)+1)-1]
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 47
<NAME> EV CLASSIC ALABAMA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 9364
<INVESTMENTS-AT-VALUE> 9497
<RECEIVABLES> 12
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9518
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91
<TOTAL-LIABILITIES> 91
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9840
<SHARES-COMMON-STOCK> 992
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 25
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (571)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 133
<NET-ASSETS> 9427
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 593
<EXPENSES-NET> 123
<NET-INVESTMENT-INCOME> 470
<REALIZED-GAINS-CURRENT> (432)
<APPREC-INCREASE-CURRENT> 566
<NET-CHANGE-FROM-OPS> 604
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (470)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (19)
<NUMBER-OF-SHARES-SOLD> 153
<NUMBER-OF-SHARES-REDEEMED> 446
<SHARES-REINVESTED> 25
<NET-CHANGE-IN-ASSETS> (2305)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 135
<AVERAGE-NET-ASSETS> 10235
<PER-SHARE-NAV-BEGIN> 9.32
<PER-SHARE-NII> .418
<PER-SHARE-GAIN-APPREC> .207
<PER-SHARE-DIVIDEND> (.418)
<PER-SHARE-DISTRIBUTIONS> (.017)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.51
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 52
<NAME> EV CLASSIC ARKANSAS TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 513
<INVESTMENTS-AT-VALUE> 513
<RECEIVABLES> 15
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 535
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 1
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 555
<SHARES-COMMON-STOCK> 56
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 534
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 31
<EXPENSES-NET> 5
<NET-INVESTMENT-INCOME> 26
<REALIZED-GAINS-CURRENT> (19)
<APPREC-INCREASE-CURRENT> 19
<NET-CHANGE-FROM-OPS> 26
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (1)
<NUMBER-OF-SHARES-SOLD> 52
<NUMBER-OF-SHARES-REDEEMED> 64
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> (93)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21
<AVERAGE-NET-ASSETS> 567
<PER-SHARE-NAV-BEGIN> 9.53
<PER-SHARE-NII> .424
<PER-SHARE-GAIN-APPREC> .075
<PER-SHARE-DIVIDEND> (.424)
<PER-SHARE-DISTRIBUTIONS> (.015)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 42
<NAME> EV CLASSIC GEORGIA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 2490
<INVESTMENTS-AT-VALUE> 2468
<RECEIVABLES> 22
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2498
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11
<TOTAL-LIABILITIES> 11
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2752
<SHARES-COMMON-STOCK> 271
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (248)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (22)
<NET-ASSETS> 2487
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 145
<EXPENSES-NET> 28
<NET-INVESTMENT-INCOME> 117
<REALIZED-GAINS-CURRENT> (170)
<APPREC-INCREASE-CURRENT> 137
<NET-CHANGE-FROM-OPS> 84
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (117)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6)
<NUMBER-OF-SHARES-SOLD> 77
<NUMBER-OF-SHARES-REDEEMED> 140
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> (502)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45
<AVERAGE-NET-ASSETS> 2538
<PER-SHARE-NAV-BEGIN> 9.22
<PER-SHARE-NII> .412
<PER-SHARE-GAIN-APPREC> (.011)
<PER-SHARE-DIVIDEND> (.412)
<PER-SHARE-DISTRIBUTIONS> (.019)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 43
<NAME> EV CLASSIC KENTUCKY TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 1927
<INVESTMENTS-AT-VALUE> 1791
<RECEIVABLES> 27
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1826
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 3
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2055
<SHARES-COMMON-STOCK> 196
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (100)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (135)
<NET-ASSETS> 1823
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 114
<EXPENSES-NET> 19
<NET-INVESTMENT-INCOME> 95
<REALIZED-GAINS-CURRENT> (82)
<APPREC-INCREASE-CURRENT> 32
<NET-CHANGE-FROM-OPS> 45
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (95)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (4)
<NUMBER-OF-SHARES-SOLD> 44
<NUMBER-OF-SHARES-REDEEMED> 189
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> (1242)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 46
<AVERAGE-NET-ASSETS> 1983
<PER-SHARE-NAV-BEGIN> 9.21
<PER-SHARE-NII> .423
<PER-SHARE-GAIN-APPREC> .128
<PER-SHARE-DIVIDEND> (.423)
<PER-SHARE-DISTRIBUTIONS> (.018)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.32
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 53
<NAME> EV CLASSIC LOUISIANA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 2409
<INVESTMENTS-AT-VALUE> 2420
<RECEIVABLES> 11
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2439
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55
<TOTAL-LIABILITIES> 55
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2513
<SHARES-COMMON-STOCK> 252
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (151)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12
<NET-ASSETS> 2384
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 160
<EXPENSES-NET> 31
<NET-INVESTMENT-INCOME> 129
<REALIZED-GAINS-CURRENT> (133)
<APPREC-INCREASE-CURRENT> 93
<NET-CHANGE-FROM-OPS> 89
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (129)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (5)
<NUMBER-OF-SHARES-SOLD> 57
<NUMBER-OF-SHARES-REDEEMED> 146
<SHARES-REINVESTED> 10
<NET-CHANGE-IN-ASSETS> (756)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42
<AVERAGE-NET-ASSETS> 2626
<PER-SHARE-NAV-BEGIN> 9.47
<PER-SHARE-NII> .449
<PER-SHARE-GAIN-APPREC> (.011)
<PER-SHARE-DIVIDEND> (.449)
<PER-SHARE-DISTRIBUTIONS> (.019)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.44
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 49
<NAME> EV CLASSIC MARYLAND TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 942
<INVESTMENTS-AT-VALUE> 915
<RECEIVABLES> 19
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 941
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2
<TOTAL-LIABILITIES> 2
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1009
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (45)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (27)
<NET-ASSETS> 939
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 54
<EXPENSES-NET> 10
<NET-INVESTMENT-INCOME> 44
<REALIZED-GAINS-CURRENT> (32)
<APPREC-INCREASE-CURRENT> 14
<NET-CHANGE-FROM-OPS> 26
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (129)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (5)
<NUMBER-OF-SHARES-SOLD> 39
<NUMBER-OF-SHARES-REDEEMED> 71
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> (249)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29
<AVERAGE-NET-ASSETS> 937
<PER-SHARE-NAV-BEGIN> 9.21
<PER-SHARE-NII> .421
<PER-SHARE-GAIN-APPREC> .187
<PER-SHARE-DIVIDEND> (.421)
<PER-SHARE-DISTRIBUTIONS> (.017)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.38
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 49
<NAME> EV CLASSIC MISSOURI TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 3151
<INVESTMENTS-AT-VALUE> 3129
<RECEIVABLES> 38
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3173
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10
<TOTAL-LIABILITIES> 10
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3321
<SHARES-COMMON-STOCK> 334
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (23)
<NET-ASSETS> 3163
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 191
<EXPENSES-NET> 37
<NET-INVESTMENT-INCOME> 154
<REALIZED-GAINS-CURRENT> (117)
<APPREC-INCREASE-CURRENT> 147
<NET-CHANGE-FROM-OPS> 184
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (154)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7)
<NUMBER-OF-SHARES-SOLD> 108
<NUMBER-OF-SHARES-REDEEMED> 206
<SHARES-REINVESTED> 15
<NET-CHANGE-IN-ASSETS> (696)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 58
<AVERAGE-NET-ASSETS> 3326
<PER-SHARE-NAV-BEGIN> 9.29
<PER-SHARE-NII> .419
<PER-SHARE-GAIN-APPREC> .208
<PER-SHARE-DIVIDEND> (.419)
<PER-SHARE-DISTRIBUTIONS> (.018)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.48
<EXPENSE-RATIO> 1.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 41
<NAME> EV CLASSIC NORTH CAROLINA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 6046
<INVESTMENTS-AT-VALUE> 6106
<RECEIVABLES> 17
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6129
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15
<TOTAL-LIABILITIES> 15
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6472
<SHARES-COMMON-STOCK> 659
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 17
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (434)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60
<NET-ASSETS> 6115
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 382
<EXPENSES-NET> 71
<NET-INVESTMENT-INCOME> 311
<REALIZED-GAINS-CURRENT> (328)
<APPREC-INCREASE-CURRENT> 292
<NET-CHANGE-FROM-OPS> 275
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (311)
<DISTRIBUTIONS-OF-GAINS> 0
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