<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1995
1933 ACT FILE NO. 33- 572
1940 ACT FILE NO. 811-4409
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 57 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 59 [X]
EATON VANCE MUNICIPALS TRUST
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-482-8260
-------------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
H. DAY BRIGHAM, JR., 24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
-------------------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective on November 30, 1995
pursuant to paragraph (b) of Rule 485.
The exhibit index required by Rule 483(a) under the Securities Act of 1933
is located on page in the sequential numbering system of the manually
signed copy of this Registration Statement.
Arizona Tax Free Portfolio, Colorado Tax Free Portfolio, Connecticut Tax
Free Portfolio, Michigan Tax Free Portfolio, Minnesota Tax Free Portfolio, New
Jersey Tax Free Portfolio, Pennsylvania Tax Free Portfolio and Texas Tax Free
Portfolio have also executed this Registration Statement.
<TABLE>
CALCULATION OF REGISTRATION FEE
===========================================================================================
<CAPTION>
PROPOSED PROPOSED
AMOUNT OF MAXIMUM 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 8,004,512 $10.27(1) $82,206,338(2) $100
============================================================================================
(1) Computed under Rule 457(d) on the basis of the maximum aggregate offering price per share
at the close of business on November 3, 1995.
(2) Registrant elects to calculate the maximum aggregate offering price pursuant to Rule
24e-2 for those series with a fiscal year end of August 31, 1995. $223,571,660 of shares
were redeemed during the fiscal year ended August 31, 1995. $141,693,382 of shares were
used for reductions pursuant to Paragraph (c) of Rule 24f-2 during such fiscal year.
$81,878,278 of shares redeemed are being used for the reduction of the registration fee
in this Amendment. While no fee is required for the $81,878,278 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 16, 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 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>
<C> <C>
Part A -- The Combined Prospectuses of:
EV Classic Arizona Tax Free Fund EV Marathon Arizona Tax Free Fund
EV Classic Colorado Tax Free Fund EV Marathon Colorado Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Marathon Connecticut Tax Free Fund
EV Classic Michigan Tax Free Fund EV Marathon Michigan Tax Free Fund
EV Classic Minnesota Tax Free Fund EV Marathon Minnesota Tax Free Fund
EV Classic New Jersey Tax Free Fund EV Marathon New Jersey Tax Free Fund
EV Classic Pennsylvania Tax Free Fund EV Marathon Pennsylvania Tax Free Fund
EV Classic Texas Tax Free Fund EV Marathon Texas Tax Free Fund
EV Traditional Connecticut Tax Free Fund
EV Traditional New Jersey Tax Free Fund
EV Traditional Pennsylvania Tax Free Fund
Part B -- The Combined Statements of Additional Information of:
EV Classic Arizona Tax Free Fund EV Marathon Arizona Tax Free Fund
EV Classic Colorado Tax Free Fund EV Marathon Colorado Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Marathon Connecticut Tax Free Fund
EV Classic Michigan Tax Free Fund EV Marathon Michigan Tax Free Fund
EV Classic Minnesota Tax Free Fund EV Marathon Minnesota Tax Free Fund
EV Classic New Jersey Tax Free Fund EV Marathon New Jersey Tax Free Fund
EV Classic Pennsylvania Tax Free Fund EV Marathon Pennsylvania Tax Free Fund
EV Classic Texas Tax Free Fund EV Marathon Texas Tax Free Fund
EV Traditional Connecticut Tax Free Fund
EV Traditional New Jersey Tax Free Fund
EV Traditional Pennsylvania 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>
<TABLE>
EATON VANCE MUNICIPALS TRUST
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
<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 (or Service Plan
for Traditional Funds); The Eaton Vance
Exchange Privilege; Eaton Vance
Shareholder Services; Statement of
Intention and Escrow Agreement (Traditional
Funds only)
8. ...................... Redemption or Repurchase How to Redeem Fund Shares
9. ...................... Pending Legal Proceedings Not Applicable
<CAPTION>
PART B
ITEM NO. ITEM CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------ -------- ---------------------------------------------
<S> <C> <C>
10. ...................... Cover Page Cover Page
11. ...................... Table of Contents Table of Contents
12. ...................... General Information and History Other Information
13. ...................... Investment Objectives and Policies Investment Objective and Policies; Investment
Restrictions
14. ...................... Management of the Fund Trustees and Officers; Fees and Expenses
15. ...................... Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
16. ...................... Investment Advisory and Other Investment Adviser and Administrator;
Services Distribution Plan (or Service Plan for
Traditional Funds); Custodian; Independent
Certified Public Accountants; Fees and
Expenses
17. ...................... Brokerage Allocation and Other Portfolio Security Transactions; Fees and
Practices Expenses
18. ...................... Capital Stock and Other Securities Other Information
19. ...................... Purchase, Redemption and Pricing of Determination of Net Asset Value; Principal
Securities Being Offered Underwriter; Service for Withdrawal;
Services for Accumulation (Traditional
Funds only); Distribution Plan (or Service
Plan for Traditional Funds only); Fees and
Expenses
20. ...................... Tax Status Taxes; Tax Equivalent Yield Table
21. ...................... Underwriters Principal Underwriter; Fees and Expenses
22. ...................... Calculation of Performance Data Investment Performance
23. ...................... Financial Statements Financial Statements
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV CLASSIC
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
EV CLASSIC ARIZONA MUNICIPALS FUND EV CLASSIC MINNESOTA MUNICIPALS FUND
EV CLASSIC COLORADO MUNICIPALS FUND EV CLASSIC NEW JERSEY MUNICIPALS FUND
EV CLASSIC CONNECTICUT MUNICIPALS FUND EV CLASSIC PENNSYLVANIA MUNICIPALS FUND
EV CLASSIC MICHIGAN MUNICIPALS FUND EV CLASSIC TEXAS 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 (IF ANY) 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 December 1,
1995 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> <C>
Shareholder and Fund Expenses ................ 2 How to Redeem Fund Shares ............ 17
The Funds' Financial Highlights .............. 4 Reports to Shareholders .............. 18
The Funds' Investment Objectives ............. 6 The Lifetime Investing Account/
How the Funds and the Portfolios Distribution Options ............... 18
Invest their Assets.......................... 6 The Eaton Vance Exchange Privilege ... 19
Organization of the Funds and the Portfolios.. 10 Eaton Vance Shareholder Services ..... 20
Management of the Funds and the Portfolios.... 12 Distributions and Taxes .............. 20
Distribution Plans............................ 14 Performance Information .............. 21
Valuing Fund Shares .......................... 15 Appendix -- State Specific Information 23
How to Buy Fund Shares ....................... 16
- ----------------------------------------------------------------------------------------------------
PROSPECTUS DATED DECEMBER 1, 1995
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES
- ---------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge Imposed on Redemption during the First Year (as
a percentage of redemption proceeds exclusive of all reinvestments and capital
appreciation in the account) 1.00%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------------
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.42% 0.13% 0.44% 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.95 0.95 0.95 0.95
Other Expenses 0.23 0.18 0.09 0.30
---- ---- ---- ----
Total Operating Expenses 1.60% 1.26% 1.48% 1.69%
==== ==== ==== ====
<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:
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 26 $ 23 $ 25 $ 27
3 Years 50 40 47 53
5 Years 87 69 81 92
10 Years 190 152 177 200
<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 $ 13 $ 15 $ 17
3 Years 50 40 47 53
5 Years 87 69 81 92
10 Years 190 152 177 200
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------------
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.37% 0.47% 0.48% 0.00%
Rule 12b-1 Distribution (and Service) Fees 0.95 0.95 0.95 0.95
Other Expenses 0.15 0.05 0.05 0.06
--- --- --- ---
Total Operating Expenses 1.47% 1.47% 1.48% 1.01%
==== ==== ==== ====
<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:
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year ..................................... $ 25 $ 25 $ 25 $ 20
3 Years ..................................... 46 46 47 32
5 Years ..................................... 80 80 81 56
10 Years ..................................... 176 176 177 124
<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 $ 10
3 Years .................................... 46 46 47 32
5 Years .................................... 80 80 81 56
10 Years .................................... 176 176 177 124
</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: Arizona Fund
Other Expenses would have been 0.84%; Colorado Fund Investment Adviser Fee and
Other Expenses would have been 0.28% and 0.95%, respectively; Connecticut Fund
Other Expenses would have been 0.66%; Michigan Fund Other Expenses would have
been 0.53%; Minnesota Fund Other Expenses would have been 0.66%; New Jersey Fund
Other Expenses would have been 0.67%; Pennsylvania Fund Other Expenses would
have been 0.64%; and Texas Fund Investment Adviser Fee and Other Expenses would
have been 0.21% and 2.17%, respectively.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than the per share
expenses the Fund would incur if the Fund were instead to retain the services of
an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual return
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 12.
Other investment companies with different distribution arrangements and fees are
investing in the Portfolios and additional such companies may do so in the
future. See "Organization of the Funds and the Portfolios".
THE FUNDS' FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of 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 JULY 31,
--------------------------------------------------------------------------------------------
ARIZONA FUND COLORADO FUND CONNECTICUT FUND MICHIGAN FUND
------------------- ------------------- -------------------- --------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---- ----- ---- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.390 $10.000 $ 9.180 $10.000 $ 9.250 $10.000 $ 9.220 $10,000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.432 $ 0.253 $ 0.450 $ 0.256 $ 0.431 $ 0.246 $ 0.419 $ 0.261
Net realized and unrealized
gain (loss) on investments 0.142 (0.563) 0.062++ (0.761) (0.044) (0.683) 0.063 (0.733)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.574 $(0.310) $ 0.512 $(0.505) $ 0.387 $(0.437) $ 0.482 $(0.472)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.432) $(0.253) $(0.450) $(0.256) $(0.431) $(0.246) $(0.419) $(0.261)
In excess of net investment
income (0.022) (0.047) (0.012) (0.059) (0.026) (0.067) (0.023) (0.047)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.454) $(0.300) $(0.462) $(0.315) $(0.457) $(0.313) $(0.442) $(0.308)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.510 $ 9.390 $ 9.230 $ 9.180 $ 9.180 $ 9.250 $ 9.260 $ 9.220
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 6.44% (3.23)% 5.89% (5.22)% 4.49% (4.53)% 5.52% (4.88)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period
(000 omitted) $2,465 $ 2,412 $ 1,971 $ 2,342 $ 4,614 $ 3,215 $ 4,475 $ 6,366
Ratio of net expenses to
average daily net assets(2) 1.60% 1.75%+ 1.26% 1.38%+ 1.48% 1.64%+ 1.69% 1.69%+
Ratio of net investment income
to average daily net assets 4.73% 4.14%+ 5.04% 4.20%+ 4.76% 4.07%+ 4.70% 4.18%+
**For the periods indicated, the operating expenses of the Funds and the Portfolios may 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:
NET INVESTMENT INCOME PER SHARE $ 0.376 $ 0.181 $ 0.368 $ 0.146 $ 0.379 $ 0.141 $ 0.398 $ 0.235
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of
average daily net assets):
Expenses(2) 2.21% 2.93%+ 2.18% 3.18%+ 2.05% 3.37%+ 1.92% 2.11%+
Net investment income 4.12% 2.96%+ 4.12% 2.40%+ 4.19% 2.34%+ 4.47% 3.76%+
(See footnotes on page 5.)
</TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------------
MINNESOTA FUND NEW JERSEY FUND PENNSYLVANIA FUND TEXAS FUND
------------------- ------------------- -------------------- --------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---- ----- ---- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.370 $10.000 $ 9.300 $10.000 $ 9.180 $10.000 $ 9.230 $10,000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.440 $ 0.267 $ 0.452 $ 0.276 $ 0.447 $ 0.279 $ 0.455 $ 0.267
Net realized and unrealized
gain (loss) on investments (0.048)++ (0.582) 0.004++ (0.640) 0.020 (0.766) (0.008) (0.709)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.392 $(0.315) $(0.456) $(0.364) $ 0.467 $(0.487) $ 0.447 $(0.442)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.440) $(0.267) $(0.452) $(0.276) $(0.447) $(0.279) $(0.455) $(0.267)
In excess of net investment
income (0.022) (0.048) (0.024) (0.060) (0.020) (0.054) (0.032) (0.061)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.462) $(0.315) $(0.476) $(0.336) $(0.467) $(0.333) $(0.487) $(0.328)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.300 $ 9.370 $ 9.280 $ 9.300 $ 9.180 $ 9.180 $ 9.190 $ 9.230
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 4.45% (3.29)% 5.20% (3.82)% 5.40% (5.04)% 5.16% (4.61)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period
(000 omitted) $ 3,688 $ 4,952 $ 3,307 $ 3,717 $ 2,621 $ 4,702 $ 469 $ 1,147
Ratio of net expenses to
average daily net assets(2) 1.47% 1.51%+ 1.47% 1.64%+ 1.48% 1.66%+ 1.01% 1.08%+
Ratio of net investment income
to average daily net assets 4.84% 4.33%+ 5.01% 4.30%+ 5.10% 4.43%+ 5.25% 4.53%+
<FN>
**For the periods indicates, the operating expenses of the Funds and the Portfolios may 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:
NET INVESTMENT INCOME PER SHARE $ 0.394 $ 0.209 $ 0.396 $ 0.184 $ 0.395 $ 0.235 $ 0.254 $ 0.024
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of
average daily net assets):
Expenses(2) 1.98% 2.45%+ 2.09% 3.08%+ 2.07% 2.36%+ 3.33% 5.20%+
Net investment income 4.33% 3.38%+ 4.39% 2.86%+ 4.51% 3.73%+ 2.93% 0.41%+
<CAPTION>
Footnotes:
*For the Arizona, Colorado, Connecticut, Michigan, Minnesota, New Jersey, Pennsylvania and Texas Funds, the Financial Highlights
are for the period from the start of business, December 13, 1993, December 10, 1993, December 9, 1993, December 7, 1993, December
9, 1993, December 3, 1993, December 3, 1993, and December 8, 1993, respectively, to July 31, 1994.
+Annualized.
++The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of Fund shares and the amount of the 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 ARIZONA MUNICIPALS FUND (the "Arizona Fund") seeks to provide
current income exempt from regular federal income tax and Arizona State
personal income taxes. The Arizona Fund seeks to meet its objective by
investing its assets in the Arizona Municipals Portfolio (the "Arizona
Portfolio").
EV CLASSIC COLORADO MUNICIPALS FUND (the "Colorado Fund") seeks to provide
current income exempt from regular federal income tax and Colorado State
personal income taxes. The Colorado Fund seeks to meet its objective by
investing its assets in the Colorado Municipals Portfolio (the "Colorado
Portfolio").
EV CLASSIC CONNECTICUT MUNICIPALS FUND (the "Connecticut Fund") seeks to
provide current income exempt from regular federal income tax and Connecticut
State personal income taxes. The Connecticut Fund seeks to meet its objective
by investing its assets in the Connecticut Municipals Portfolio (the
"Connecticut Portfolio").
EV CLASSIC MICHIGAN MUNICIPALS FUND (the "Michigan Fund") seeks to provide
current income exempt from regular federal income tax and Michigan State and
City income and single business taxes in the form of an investment exempt from
Michigan intangibles tax. The Michigan Fund seeks to meet its objective by
investing its assets in the Michigan Municipals Portfolio (the "Michigan
Portfolio").
EV CLASSIC MINNESOTA MUNICIPALS FUND (the "Minnesota Fund") seeks to provide
current income exempt from regular federal income tax and regular Minnesota
State personal income taxes. The Minnesota Fund seeks to meet its objective by
investing its assets in the Minnesota Municipals Portfolio (the "Minnesota
Portfolio").
EV CLASSIC NEW JERSEY MUNICIPALS FUND (the "New Jersey Fund") seeks to provide
current income exempt from regular federal income tax and New Jersey State
personal income taxes. The New Jersey Fund seeks to meet its objective by
investing its assets in the New Jersey Municipals Porfolio (the "New Jersey
Portfolio").
EV CLASSIC PENNSYLVANIA MUNICIPALS FUND (the "Pennsylvania Fund") seeks to
provide current income exempt from regular federal income tax and Pennsylvania
State and local taxes in the form of an investment exempt from Pennsylvania
personal property taxes. The Pennsylvania Fund seeks to meet its objective by
investing in the Pennsylvania Municipals Portfolio (the "Pennsylvania
Portfolio").
EV CLASSIC TEXAS MUNICIPALS FUND (the "Texas Fund") seeks to provide current
income exempt from regular federal income taxes. The Texas Fund seeks to meet
its objective by investing its assets in the Texas Municipals Portfolio (the
"Texas Portfolio"). The State of Texas does not impose a State income tax on
individuals.
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 DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF ITS
CORRESPONDING STATE AND ITS POLITICAL SUBDIVISIONS, AND (EXCEPT FOR THE
MINNESOTA FUND) THE GOVERNMENTS OF PUERTO RICO, THE U.S. VIRGIN ISLANDS AND
GUAM, THE INTEREST ON WHICH IS EXEMPT FROM REGULAR FEDERAL INCOME TAX, IS NOT
A TAX PREFERENCE ITEM UNDER THE FEDERAL ALTERNATIVE MINIMUM TAX (AND, IN THE
CASE OF MINNESOTA, MINNESOTA ALTERNATIVE MINIMUM TAXES) AND IS EXEMPT FROM THE
STATE TAXES SET FORTH ABOVE (IF ANY). In the case of the Connecticut Fund,
the Fund may invest in debt obligations of Puerto Rico, the U.S. Virgin
Islands and Guam the interest on which cannot be taxed by any State under
federal law. 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.
The Minnesota Portfolio intends to invest is assets so as to comply with the
requirement that, in order for exempt interest dividends that are derived from
interest income from specified Minnesota sources to be exempt from regular
Minnesota State personal income taxes, 95% or more of the exempt interest
dividends that are paid to all shareholders by the Minnesota Fund must be
derived from such specified Minnesota sources. The Minnesota Portfolio invests
in debt obligations issued by or on behalf of the State of Minnesota and its
political or governmental subdivisions, municipalities, governmental agencies
or instrumentalities.
At least 80% of the net assets of the New Jersey Portfolio, at least 75% of
the net assets of the Colorado Portfolio, Connecticut Portfolio and Texas
Portfolio, and at least 70% of the net assets of the Arizona Portfolio,
Michigan Portfolio, Minnesota Portfolio and Pennsylvania 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 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". See
"Credit Quality - Risks." 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% (in the case of the Minnesota Portfolio, generally 95% or more)
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 (or, in the case of the Minnesota Fund,
Minnesota alternative minimum taxes) for individual investors. A Portfolio may
not invest more than 20% of its net assets in these obligations and
obligations that pay interest subject to regular federal income tax and/or the
relevant State taxes (subject, in the case of the Minnesota Fund, to the 95%
test described above). A proposal has been submitted to shareholders of each
Fund which would permit unlimited investment in obligations subject to the
federal alternative minimum tax (and Minnesota alternative minimum tax, in the
case of the Minnesota Fund). If approved at the December 8, 1995 shareholder
meeting (or any adjournment thereof) the new policy would be effective
immediately. As at July 31, 1995, the Portfolios had invested in such
obligations as follows (as a percentage of net assets): Arizona Portfolio
(5.2%); Colorado Portfolio (9.3%); Connecticut Portfolio (7.5%); Michigan
Portfolio (5.6%); Minnesota Portfolio (14.3%); New Jersey Portfolio (18.8%);
Pennsylvania Portfolio (18.2%); and Texas Portfolio (19.5%). Distributions to
corporate investors of certain interest income may also be subject to the
federal alternative minimum tax. For corporate shareholders of the Minnesota
Fund, exempt interest dividends attributable to interest on all municipal
obligations (whenever issued) eligible for exemption from regular Minnesota
State personal income taxes are included in taxable income and in alternative
minimum taxable income for purposes of determining the Minnesota franchise tax
imposed on corporations subject to Minnesota taxation.
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 (except the Minnesota 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 a Portfolio invests in lower
rated and unrated minicipal 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
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EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A
MUTUAL FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the
Trust are responsible for the overall management and supervision of its
affairs. The Trust may issue an unlimited number of shares of beneficial
interest (no par value per share) in one or more series and because the Trust
can offer separate series (such as the Funds) it is known as a "series
company." Each share represents an equal proportionate beneficial interest in
a Fund. When issued and outstanding, each Fund's shares are fully paid and
nonassessable by the Trust and redeemable as described under "How to Redeem
Fund Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of a Fund, shareholders of that Fund are entitled to share pro rata in the net
assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
Portfolio (e.g., other U.S. and foreign investment companies, and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Portfolio itself is unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
a Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in its
corresponding Portfolio, which is a separate investment company with an
identical investment objective (although the Fund may temporarily hold a de
minimus amount of cash). Therefore, a Fund's interest in the securities owned
by its corresponding Portfolio is indirect. In addition to selling an interest
to its corresponding Fund, a Portfolio may sell interests to other affiliated
and non-affiliated mutual funds or institutional investors. Such investors
will invest in a Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in a Portfolio are not required to sell their shares at the same
public offering price as the corresponding Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in its corresponding
Portfolio. Such differences in returns are also present in other mutual fund
structures, including funds that have multiple classes of shares. For
information regarding the investment objective, policies and restrictions of
the Portfolios, see "The Funds' Investment Objectives" and "How the Funds and
the Portfolios Invest their Assets". Further information regarding investment
practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets
of the Portfolios, and affords the potential for economies of scale for each
Fund, at least when the assets of its corresponding Portfolio exceed $500
million.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and
the nonfundamental investment policies of each Fund and Portfolio may be
changed by the Trustees of the Trust and the Portfolio without obtaining the
approval of the shareholders of that Fund or the investors in that Portfolio,
as the case may be. Any such change of an investment objective will be
preceded by thirty days advance written notice to the shareholders of the Fund
or the investors in the Portfolio, as the case may be. In the event a Fund
withdraws all of its assets from its corresponding Portfolio, or the Board of
Trustees of the Trust determines that the investment objective of such
Portfolio is no longer consistent with the investment objective of the Fund,
such Trustees would consider what action might be taken, including investing
all 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
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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
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1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory
fees for the fiscal year ended July 31, 1995 equivalent to the following
annualized percentage of average daily net assets:
NET ASSETS AS OF
PORTFOLIO JULY 31, 1995 ADVISORY FEE
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Arizona $144,521,015 0.42%
Colorado 46,077,166 0.28%(1)
Connecticut 195,275,789 0.44%
Michigan 191,262,981 0.44%
Minnesota 82,967,696 0.37%
New Jersey 411,038,422 0.47%
Pennsylvania 502,250,304 0.48%
Texas 28,227,021 0.21%(2)
(1)To enhance the net income of the Colorado Portfolio, BMR made a reduction of
its advisory fee in the amount of $69,064.
(2)To enhance the net income of the Texas Portfolio, BMR made a reduction of
its advisory fee in the full amount of such fee and BMR was allocated
$18,606 of expenses related to the operation of such Portfolio.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real
estate investment, consulting and management, and development of precious
metals properties.
Nicole Anderes has acted as the portfolio manager of the Connecticut Portfolio
since January, 1994. 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 Michigan and Texas
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 Arizona Portfolio
since January 1, 1994 and as portfolio manager of the Colorado Portfolio since
it commenced operations. Ms. Clemson has been a Vice President of Eaton Vance
and BMR since 1993 and an employee of Eaton Vance since 1985.
Robert B. MacIntosh has acted as the portfolio manager of the Minnesota and
the New Jersey Portfolios since they commenced operations. Mr. MacIntosh has
been a Vice President of Eaton Vance since 1991 and of BMR since 1992. Prior
to joining Eaton Vance, he was a portfolio manager at Fidelity Management &
Research Company (1986-1991).
David C. Reilly has acted as the portfolio manager of the Pennsylvania
Portfolio since it 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 (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 1/12 of .75% of the
value of shares sold by such Firm and remaining outstanding for at least one
year. The Plan is designed to permit an investor to purchase Fund shares
through an Authorized Firm without incurring an initial sales charge and at
the same time permit the Principal Underwriter to compensate Authorized Firms
and other persons 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 therefore 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 July 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 July 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter on such day calculated under
each Fund's Plan amounted to approximately $421,000 (equivalent to 17.1% of
net assets on such day) in the case of the Arizona Fund, $286,000 (equivalent
to 14.5% of net assets on such day) in the case of the Colorado Fund, $346,000
(equivalent to 7.5% of net assets on such day) in the case of the Connecticut
Fund, $527,000 (equivalent to 11.8% of net assets on such day) in the case of
the Michigan Fund, $419,000 (equivalent to 11.4% of net assets on such day) in
the case of the Minnesota Fund, $295,000 (equivalent to 8.9% of net assets on
such day) in the case of the New Jersey Fund, $474,000 (equivalent to 18.1% of
net assets on such day) in the case of the Pennsylvania Fund, and $81,000
(equivalent to 17.3% of net assets on such day) in the case of the Texas 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 1/12 of .20% of the
value of shares sold by such Firm and remaining outstanding for at least one
year. Each Fund's Plan authorizes the Trustees of the Trust on behalf of the
Fund to increase payments to the Principal Underwriter, Authorized Firms and
other persons from time to time without further action by shareholders of the
Fund, provided that the aggregate amount of payments made to such persons
under the Plan in any fiscal year of the Fund does not exceed .25% of the
Fund's average daily net assets. During the first year after a purchase of
Fund shares, the Principal Underwriter will retain the service fee as
reimbursement for the service fee payment made to the Authorized Firm at the
time of sale. As permitted by the NASD Rule, all service fee payments are made
for personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales commissions and distribution
fees payable by a Fund to the Principal Underwriter, and as such are not
subject to automatic discontinuance when there are no outstanding Uncovered
Distribution Charges of the Principal Underwriter. For the fiscal year ended
July 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 Principal
Underwriter. Each Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, no Fund is contractually obligated to
continue its Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
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SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares. Shares of each Fund are offered
for sale only in States where such shares may be legally sold. An Authorized
Firm may charge its customers a fee in connection with transactions executed
by that Firm.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: 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
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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 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
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing federal and State tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS'
TRANSFER AGENT, 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 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 values 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 generally 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 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
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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 (and,
in the case of the Minnesota Portfolio, generally 95% or more) in the
obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio (except the Minnesota 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.
ARIZONA. Arizona's economy is primarily based on the service, high-tech
manufacturing, construction and tourism industries, as well as the military.
The State experienced rapid economic and population growth in the 1980s, which
has slowed somewhat in the 1990s. The problems associated with such growth
(air quality, transportation and public infrastructure) continue to be
addressed by the State legislature. The State's unemployment rate in June 1995
was 5.1%, below the national rate of 5.6%.
The State's ability to raise revenues is limited by Constitutional and
legislative restrictions on property tax increases. There is also a limit on
annual spending. The State does not issue general obligation bonds, but relies
on pay-as-you-go capital outlays, revenue bonds and certificates of
participation to finance projects. Each of these projects is individually
rated based on its specific creditworthiness.
ARIZONA TAXES. Based upon the advice of Arizona tax counsel, the management
of the Fund believes that under Arizona law, dividends paid by the Fund will
be exempt from Arizona income tax imposed on individuals, corporations and
estates and trusts that are subject to Arizona taxation to the extent such
dividends are excluded from gross income for federal income tax purposes and
are derived from interest payments on Arizona obligations. In addition,
dividends paid by the Fund will be exempt from Arizona income tax imposed on
such persons, though included in gross income for federal income tax purposes,
to the extent such dividends are derived from interest payments on direct
obligations of the United States. Other distributions from the Fund, including
distributions derived from net short-term and long-term capital gains, are
generally not exempt from Arizona
income tax.
Interest or indebtedness and other related expenses which are incurred or
continued by a shareholder to purchase or carry shares of the Fund generally
will not be deductible for Arizona income tax purposes.
COLORADO. Colorado's economy began to improve in the late 1980s, recovering
from a recession largely caused by contractions in the energy, high technology
and construction industries. The recovery has been fueled, in part, by large
public construction projects, net in-migration, a healthy tourist economy, and
increases in the wholesale and retail trade sector and the general services
sector. Momentum is sufficient that the Office of State Planning and Budgeting
has pronounced that Colorado's "slower growth pattern mimics that of the
United States, although it is not as severe as the nation's", even though
most of the large public works projects are completed and the boom in net
migration begins to ease. Employment in the service and trade industries
represents approximately 54.4% of the State's nonagricultural wage and salary
jobs, and government employment represents approximately 15.9%. Manufacturing
represents only 10.8% and, while total jobs in the sector is increasing,
manufacturing is slowly falling as a percentage of total employment, due in
part to a concentration in defense-related production. Colorado's unemployment
rate was 3.7% in August 1995, below the national rate of 5.6%. Colorado added
41,000 jobs in the twelve months ended August 1995, a 2.3% increase from the
prior year. There is no State general obligation debt outstanding.
COLORADO TAXES. In the opinion of Kutak Rock, special Colorado tax counsel to
the Fund, provided that the Fund qualifies as a regulated investment company
under the Code, and the Portfolio is treated as a partnership for federal
income tax purposes, individuals, trusts, estates, and corporations who are
holders of the Fund and who are subject to the Colorado income tax will not be
subject to Colorado tax on 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 and are derived from interest
received by the Fund on obligations of Colorado or any of its political
subdivisions issued on or after May 1, 1980 or (b) obligations of the United
States or its possessions to the extent included in federal taxable income. To
the extent that Fund distributions are attributable to sources
not described in the preceding sentences, such as long or short-term capital
gains, such distributions will not be exempt from
Colorado income tax. There are no municipal income taxes in Colorado. As
intangibles, shares in the Fund will be exempt from Colorado property taxes.
CONNECTICUT. Historically, Connecticut's economic structure has been
concentrated in manufacturing, including a heavy component of defense-related
industries, which increases the State's vulnerability to economic cycles and
to declines in federal government defense spending. More recently,
Connecticut's level of manufacturing activity has declined, but this has been
partially offset by extensive urban development, a large insurance sector,
relocations of corporate headquarters to Connecticut (specifically to
Fairfield County), and the extension of other service sectors. As of June
1995, the unemployment rate in Connecticut on a seasonally adjusted basis was
5.1%, as compared to a rate of 5.6% nationwide.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. The State has about $6 billion of general obligation bonds
outstanding, of which more than half have been issued for general State
purposes. The remaining general obligation bonds were issued for highway
construction, mass transit, and rental housing. Debt indicators have been
rising and are high at $1,850 per capita. Certain Connecticut municipalities
have experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. This could result in declines in the value of their outstanding
obligations, reductions in their ability to pay interest and principal
thereon, and increases in their future borrowing costs.
General obligations of the State of Connecticut are rated AA-, Aa and AA+ by
S&P, Moody's and Fitch, respectively.
CONNECTICUT TAXES. In the opinion of Day, Berry & Howard, special Connecticut
tax counsel to the Connecticut Fund, shareholders of the Connecticut Fund will
not be subject to the Connecticut personal income tax on the Connecticut
taxable income of individuals, trusts, and estates in the case of
distributions received from the Connecticut Fund to the extent that such
distributions qualify as exempt-interest dividends for federal income tax
purposes and are derived from interest on tax-exempt obligations issued by or
on behalf of the State of Connecticut and its political subdivisions or the
authorities, instrumentalities, or districts of any of them, or on tax-exempt
obligations the interest on which Connecticut is prohibited from taxing by
federal law that are issued by the governments of Puerto Rico, the U.S. Virgin
Islands and Guam.
Other distributions from the Connecticut 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 the Connecticut personal
income tax, except that capital gain dividends derived from obligations issued
by or on behalf of the State of Connecticut or its political subdivisions may
not be subject to such tax. Distributions from the Connecticut Fund that
constitute items of tax preference for purposes of the federal alternative
minimum tax will not be subject to the net Connecticut minimum tax applicable
to taxpayers subject to the Connecticut personal income tax and required to
pay the federal alternative minimum tax, to the extent qualifying as exempt-
interest dividends derived from obligations issued by or on behalf of the
State of Connecticut and its political subdivisions or the authorities,
instrumentalities, or districts of any of them, or from obligations the
interest on which Connecticut is prohibited from taxing by federal law that
are issued by the governments of Puerto Rico, the U.S. Virgin Islands and
Guam, but other distributions from the Fund that constitute items of tax
preference for purposes of the Federal alternative minimum tax could cause
liability for the net Connecticut minimum tax. The Connecticut Fund will
report annually to its shareholders the percentage and source, on a state-by-
state basis, of interest income received by the Connecticut Fund on municipal
bonds during the preceding year.
Distributions from investment income and capital gains, including exempt-
interest dividends derived from interest that is exempt from Connecticut
personal income tax and federal income tax, will be subject to the Connecticut
Corporation Business Tax if received by a corporation subject to such tax,
except for any portion therof that might qualify for the dividends-received
deduction provided under that tax, and all such distributions may be subject
to state and local taxes in states other than Connecticut.
MICHIGAN. Michigan has long had a large representation in and is dominated by
the automobile industry and related industries and tends to be more vulnerable
to economic cycles than other states and the nation as a whole. As of August,
1995 Michigan's unemployment rate was 5.1%, as compared to the national rate
of 5.6%. In March, 1994, Michigan voters approved changes to the tax system
resulting in, among other things, an increase in the sales tax rate, a
reduction in the income tax rate and the creation of a statewide property tax.
Michigan's general obligation debt is rated A1, AA and AA, by Moody's, S&P and
Fitch, respectively.
MICHIGAN TAXES. The Michigan Fund has received an opinion from Butzel Long,
special Michigan tax counsel to the Michigan Fund, to the effect that
shareholders of the Michigan Fund who are subject to the Michigan state income
tax, municipal income tax or single business tax will not be subject to such
taxes on their Michigan Fund dividends to the extent that such distributions
are exempt-interest dividends for federal income tax purposes and are
attributable to interest on obligations held by the Michigan Portfolio and
allocated to the Michigan Fund which is exempt from regular federal income
tax, is not a tax preference item under the federal alternative minimum tax
and is exempt from Michigan State and City income taxes, Michigan single
business tax and in the form of an investment exempt from the Michigan
intangibles tax ("Michigan tax-exempt obligations"). Other distributions with
respect to shares of the Michigan Fund including, but not limited to, long or
short-term capital gains, will be subject to the Michigan income tax or single
business tax and may be subject to the city income taxes imposed by certain
Michigan cities. The opinion also provides that shares of the Michigan Fund
will be exempt from the Michigan intangibles tax to the extent the Michigan
Portfolio's assets consist of Michigan tax-exempt obligations and any other
securities or obligations that are exempt from the Michigan intangibles tax.
MINNESOTA. Minnesota relies heavily on a progressive individual income tax and
a retail sales tax for revenue, which results in a fiscal system unusually
sensitive to economic conditions. Economic and State fiscal conditions have
improved. As of August 1995, the State unadjusted unemployment rate was 2.6%
compared with a national rate of 5.6%. Unaudited information indicates that
the State ended fiscal year 1995 with a General Fund balance of $921 million.
The State's general obligation bonds are rated Aa1, AA+ and AAA, by Moody's,
S&P and Fitch, respectively. In March 1993, S&P revised the outlook on
Minnesota debt from Negative to Stable.
MINNESOTA TAXES. In the opinion of Faegre & Benson, special Minnesota tax
counsel to the Fund, provided that the Fund qualifies as a "regulated
investment company" under the Code and subject to the discussion in the
paragraph below, exempt-interest dividends paid by the Fund will be exempt
from the regular Minnesota personal income tax imposed on individuals, estates
and trusts that are subject to Minnesota taxation to the extent that such
dividends qualify as exempt-interest dividends of a regulated investment
company under section 852(b)(5) of the Internal Revenue Code which are derived
from interest income on tax-exempt obligations of Minnesota, or its political
or governmental subdivisions, municipalities, governmental agencies or
instrumentalities ("Minnesota Sources"); provided, however, such exemption
from the regular Minnesota personal income tax is available only if the
portion of the exempt-interest dividends from such Minnesota Sources that is
paid to all shareholders represents 95% or more of the exempt-interest
dividends that are paid by the Fund. For this purpose, provided that the
Portfolio is taxed federally as a partnership and not as a corporation, the
Fund will be treated as owning its proportionate share of the assets of the
Portfolio and the income derived from such assets. The Fund and the Portfolio
intend to invest their respective assets so that each will meet the 95% test.
However, if the 95% test is not met, all exempt-interest dividends that are
paid by the Fund will be subject to the regular Minnesota personal income tax.
Even if the 95% test is met, to the extent that exempt-interest dividends paid
by the Fund are not derived from the Minnesota Sources referred to in the
first sentence of this paragraph, they will be subject to the regular
Minnesota personal income tax. Other distributions of the Fund, including
distributions derived from net short-term and long-term capital gains, are
generally not exempt from the regular Minnesota personal income tax imposed on
individuals, estates and trusts.
Legislation enacted in 1995 provides that it is the intent of the Minnesota
legislature that interest income on obligations of Minnesota governmental
units, including obligations of the Minnesota Sources described above, and
exempt-interest dividends that are derived from interest income on such
obligations, be included in the net income of individuals, estates, and trusts
for Minnesota income tax purposes if it is judicially determined that the
exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income
on obligations of governmental issuers located in other states, or exempt-
interest dividends derived from such obligations, is so included. This
provision applies to taxable years that begin during or after the calendar
year in which such judicial decision becomes final, regardless of the date on
which the obligations were issued, and other remedies apply for previous
taxable years. The United States Supreme Court recently denied certiorari in
an Ohio case which upheld an exemption for interest income on obligations of
Ohio governmental issuers, even though interest income on obligations of non-
Ohio governmental issuers was subject to tax. However, it cannot be predicted
whether a similar case will be brought in Minnesota or elsewhere, or what the
outcome of such case would be.
Minnesota imposes an alternative minimum tax on individuals, estates, and
trusts that is based, in part, on such taxpayers' Federal alternative minimum
taxable income. Accordingly, exempt-interest dividends that constitute tax
preference items for purposes of the Federal alternative minimum tax, even
though they are derived from the Minnesota Sources described in the paragraph
above will be included in the base upon which such Minnesota alternative
minimum tax is computed. In addition, the entire portion of exempt-interest
dividends that is derived from sources other than the Minnesota Sources
described above also is subject to the Minnesota alternative minimum tax
imposed on individuals, estates and trusts. Furthermore, should the 95% test
that is described above fail to be met, all of the exempt-interest dividends
that are paid by the Fund, including all of those derived from the Minnesota
Sources described above, will be subject to the Minnesota alternative minimum
tax imposed on such shareholders.
Distributions from the Fund will be included in taxable income and in
alternative minimum taxable income, for purposes of determining the Minnesota
franchise tax imposed on corporations subject to Minnesota taxation. Such
distributions may also be taken into account in certain cases in determining
the minimum fee that is imposed on corporations, S corporations, and
partnerships.
Interest on indebtedness which is incurred and continued by an individual, a
trust or an estate to purchase or carry shares of the Fund generally will not
be deductible for regular Minnesota personal income tax purposes or Minnesota
alternative minimum tax purposes.
NEW JERSEY. The fiscal year 1995 budget included total spending of $15.5
billion. However, the proposed fiscal year 1996 budget (for the fiscal period
ending June 30, 1996) includes total spending of $15.987 billion, or a 3.14%
increase over fiscal 1995. In addition, New Jersey has adopted a 10% personal
income tax cut retroactive to January 1, 1995. Furthermore, on June 26, 1995,
the New Jersey Legislature passed an additional 15% reduction to take effect
January 1, 1996. State officials estimate the revenue loss resulting from
these tax cuts at over $1 billion for fiscal 1996. To accommodate the tax cut,
the fiscal 1996 budget would rely on non-recurring revenues and the use of
prior years' surplus. Also a major focus of the spending reductions has been
employer contributions to retiree health care and pension systems, which were
cut by over $863 million in fiscal 1995. There can be no assurance that the
tax cuts will not have an adverse impact on the State's finances and the
demand for municipal bonds in the State.
New Jersey's general obligation debt is rated Aa1, AA+ and AA+ by Moody's, S&P
and Fitch, respectively.
NEW JERSEY TAXES. The New Jersey Fund intends to satisfy New Jersey's
statutory requirements for treatment as a "Qualified Investment Fund." The
Fund has obtained an opinion of its special tax counsel, Wilentz, Goldman &
Spitzer, P.A., that, provided the New Jersey Fund limits its investments to
those described in this Prospectus and otherwise satisfies such statutory
requirements, shareholders of the New Jersey Fund which are individuals,
estates or trusts will not be required to include in their New Jersey gross
income distributions from the New Jersey Fund that are attributable to
interest or gain realized by the New Jersey Fund from obligations the interest
on which is exempt from regular federal income tax, is not a tax preference
item under the federal minimum tax and is exempt from New Jersey State
personal income tax or other obligations statutorily free from New Jersey
taxation. However, with regard to corporate shareholders, such counsel is also
of the opinion that distributions from the New Jersey Fund will not be
excluded from net income and shares of the New Jersey Fund will not be
excluded from investment capital in determining New Jersey corporation
business (franchise) and corporation income taxes for corporate shareholders.
PENNSYLVANIA. Pennsylvania has long had a large representation in the steel,
mining and manufacturing industries and adverse conditions in those or other
significant industries within Pennsylvania may from time to time have a
correspondingly adverse effect on specific issuers within Pennsylvania or on
anticipated revenue to the Commonwealth. In recent years Pennsylvania's
economy has become more diversified with major new sources of growth in the
service sector, including trade, medical and the health services, education
and financial institutions. The unadjusted unemployment rate for Pennsylvania
was 5.5% for August 1995 versus the national rate of 5.6%.
The Governor's fiscal year 1996 budget contained no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending
increased 2.3% over fiscal year 1995 appropriations. The fiscal year 1996
budget included tax reductions of approximately $214.8 million. The State Tax
Stabilization Reserve Fund had a balance at March 31, 1995 of $65.3 million.
The fiscal year 1996 budget projects a $3.2 million fiscal year-end
unappropriated surplus.
Pennsylvania's general obligation debt is rated "AA-" by S&P and Fitch and
"A1" by Moody's.
PENNSYLVANIA TAXES. Interest derived by the Pennsylvania Fund from obligations
which are statutorily free from taxation in Pennsylvania ("Exempt
Obligations") are not taxable on pass through to shareholders for purposes of
the Pennsylvania personal income tax. The term "Exempt Obligations" includes
(i) those obligations issued by the Commonwealth of Pennsylvania and its
political subdivisions, agencies and instrumentalities, the interest from
which is statutorily free from state taxation in the Commonwealth of
Pennsylvania, and (ii) certain qualifying obligations of U.S. territories and
possessions, or U.S. Government obligations. Distributions attributable to
most other sources, including capital gains, will not be exempt from
Pennsylvania personal income tax.
Corporate shareholders that are subject to the Pennsylvania corporate net
income tax will not be subject to corporate net income tax on distributions of
interest made by the Pennsylvania Fund, provided such distributions are
attributable to Exempt Obligations. Distributions of capital gain attributable
to Exempt Obligations are subject to the Pennsylvania corporate net income
tax. An investment in the Pennsylvania Fund is also exempt from the
Pennsylvania Gross Premiums tax.
Shares of the Pennsylvania Fund which are held by individual shareholders who
are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the obligations
held by the Pennsylvania Portfolio consist of Exempt Obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal
property taxes.
For individual shareholders who are residents of the City of Philadelphia,
distributions of interest derived from Exempt Obligations will not be taxable
for purposes of the Philadelphia School District Investment Net Income Tax
("Philadelphia School District Tax"), provided that the Pennsylvania Portfolio
reports to its investors the percentage of Exempt Obligations held by it for
the year. The Pennsylvania Portfolio will report such percentage to its
investors.
TEXAS. Employment in Texas continued to expand during the 1990s. During August
1995, non-farm employment in Texas reached 8.92 million. Over the past year,
Texas has gained more than 126,000 jobs, an increase of 1.4%, with most of the
growth occurring in the services and trade sectors of the economy. Texas
mining employment (which is 95% oil and gas) has, however, experienced a
slight decline of 4.7%. Unemployment as of August, 1995 was 6.7% versus the
national rate of 5.6%.
The State finished the fiscal year ended August 31, 1994 with a 200 million
operating deficit in the General Revenue Fund. However, there was still a $587
million balance in the General Revenue Fund, or 3.2% of expenditures.
General obligations of Texas are rated AA, AA and AA+ by S&P, Moody's and
Fitch, respectively. Both S&P and Fitch have a stable outlook for the State.
TEXAS TAXES. Texas does not impose a state income tax on individuals. To the
extent that distributions from the Texas Fund are included in a corporate
shareholder's surplus, they will be subject to the Texas franchise tax that is
based on net worth.
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>
EATON VANCE
Mutual Funds
(Logo)
EV CLASSIC MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
PROSPECTUS
DECEMBER 1, 1995
EV CLASSIC ARIZONA MUNICIPALS FUND
EV CLASSIC COLORADO MUNICIPALS FUND
EV CLASSIC CONNECTICUT MUNICIPALS FUND
EV CLASSIC MICHIGAN MUNICIPALS FUND
EV CLASSIC MINNESOTA MUNICIPALS FUND
EV CLASSIC NEW JERSEY MUNICIPALS FUND
EV CLASSIC PENNSYLVANIA MUNICIPALS FUND
EV CLASSIC TEXAS MUNICIPALS FUND
EV CLASSIC
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 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
C-TFC12/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV MARATHON
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
EV MARATHON ARIZONA MUNICIPALS FUND EV MARATHON MINNESOTA MUNICIPALS FUND
EV MARATHON COLORADO MUNICIPALS FUND EV MARATHON NEW JERSEY MUNICIPALS
EV MARATHON CONNECTICUT MUNICIPALS FUND FUND
EV MARATHON MICHIGAN MUNICIPALS FUND EV MARATHON PENNSYLVANIA MUNICIPALS
FUND
EV MARATHON TEXAS MUNICIPALS FUND
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 (IF ANY) 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 December 1,
1995 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.
- ------------------------------------------------------------------------------
PAGE PAGE
Shareholder and Fund Expenses . 2 How to Buy Fund Shares ................ 18
The Funds' Financial Highlights 4 How to Redeem Fund Shares ............. 19
The Funds' Investment Objectives 8 Reports to Shareholders ............... 20
How the Funds and the Portfolios The Lifetime Investing Account/
Invest their Assets ........ 8 Distribution Options ................ 20
Organization of the Funds and the The Eaton Vance Exchange Privilege .... 21
Portfolios ................... 12 Eaton Vance Shareholder Services ...... 22
Management of the Funds and the Distributions and Taxes ................23
Portfolios ................. 14 Performance Information ............... 24
Distribution Plans ........... 16 Appendix -- State Specific Information 25
Valuing Fund Shares .......... 17
- --------------------------------------------------------------------------------
PROSPECTUS DATED DECEMBER 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on
Redemption during the First Seven Years (as a percentage of
redemption proceeds exclusive of all reinvestments and capital
appreciation in the account) 5.00%-0%
<TABLE>
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- -----------------------------------------------------------------------------------------------------------
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.42% 0.13% 0.44% 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.87 0.84 0.88 0.90
Other Expenses 0.24 0.31 0.23 0.17
---- ---- ---- ----
Total Operating Expenses 1.53% 1.28% 1.55% 1.51%
==== ==== ==== ====
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:
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------
1 Year $ 66 $ 63 $ 66 $ 65
3 Years 88 81 89 88
5 Years 103 90 104 102
10 Years 182 155 185 180
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and
(b) no redemptions:
1 Year $ 16 $ 13 $ 16 $ 15
3 Years 48 41 49 48
5 Years 83 70 84 82
10 Years 182 155 185 180
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ------------------------------------------------------------------------------------------------------------
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
Investment Adviser Fee 0.37% 0.47% 0.48% 0.00%
Rule 12b-1 Distribution (and Service) Fees 0.88 0.89 0.90 0.86
Other Expenses 0.27 0.17 0.13 0.13
---- ---- ---- ----
Total Operating Expenses 1.52% 1.53% 1.51% 0.99%
==== ==== ==== ====
<PAGE>
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:
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
1 Year $ 65 $ 66 $ 65 $ 60
3 Years 88 88 88 72
5 Years 103 103 102 75
10 Years 181 182 180 121
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and
(b) no redemptions:
1 Year $ 15 $ 16 $ 15 $ 10
3 Years 48 48 48 32
5 Years 83 83 82 55
10 Years 181 182 180 121
</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 Colorado Fund would have been
0.28% of the Colorado Fund's average daily net assets and, absent a fee
reduction and expense allocation, the Investment Adviser Fee and Other Expenses
for the Texas Fund would have been 0.21% and 0.37%, respectively, of the Texas
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
six years prior to redemption, (b) shares acquired through the reinvestment of
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 conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of 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>
ARIZONA FUND COLORADO FUND
-------------------------------------------------- ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, SEPTEMBER 30, JULY 31, SEPTEMBER 30,
------------ ------------------------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994** 1993 1992 1991++ 1995 1994** 1993 1992++
-------- -------- -------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, beginning of
year $ 10.390 $ 11.570 $ 10.700 $10.320 $10.000 $10.010 $10.960 $10.060 $10.000
-------- -------- -------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.492 $ 0.404 $ 0.496 $ 0.526 $ 0.088 $ 0.494 $ 0.403 $ 0.484 $ 0.026
Net realized and unrealized
gain (loss) on investments 0.164 (0.862) 1.076 0.520 0.339+++ 0.033 (0.880) 0.996 0.082+++
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.656 $ (0.458) $ 1.572 $ 1.046 $ 0.427 $ 0.527 $(0.477) $ 1.480 $ 0.108
-------- -------- -------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.492) $ (0.404) $ (0.496) $(0.526) $(0.088) $(0.494) $(0.403) $(0.484) (0.026)
In excess of net investment
income (0.024) (0.074) (0.127) (0.120) (0.019) (0.023) (0.070) (0.096) (0.022)
From net realized gain on
investment transactions -- (0.233) (0.079) (0.020) -- -- -- -- --
In excess of net realized gain
on investment transactions -- (0.011) -- -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total distributions
$ (0.516) $ (0.722) $ (0.702) $(0.666) $(0.107) $(0.517) $(0.473) $(0.580) $(0.048)
-------- -------- -------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 10.530 $ 10.390 $ 11.570 $10.700 $10.320 $10.020 $10.010 $10.960 $10.060
======== ======== ======== ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 6.64% (4.16)% 15.29% 10.43% 4.03% 5.58% (4.46)% 15.52% 0.60%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $141,859 $150,879 $135,524 $62,498 $11,501 $43,900 $42,085 $24,847 $ 2,464
Ratio of net expenses to
average daily net assets(2) 1.53% 1.46%+ 1.53% 1.52% 1.37%+ 1.28% 1.09%+ 1.00% 1.00%+
Ratio of net investment income
to average daily net assets 4.81% 4.47%+ 4.42% 4.83% 4.33%+ 5.03% 4.59%+ 4.49% 2.26%+
PORTFOLIO TURNOVER(3) -- -- 39% 133% 8% -- -- 3% 0%
*For the periods indicated, the operating expenses of each Fund reflect an allocation of expenses to 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 $ 0.513 $ 0.082 $ 0.479 $ 0.373 $ 0.387 $ 0.011
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.64% 1.65%+ 1.43% 1.42%+ 1.90% 2.34%+
Net investment income 4.71% 4.05%+ 4.88% 4.26%+ 3.60% 0.92%+
(See footnotes on page 7.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT FUND MICHIGAN FUND
--------------------------------------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, SEPTEMBER 30, JULY 31, SEPTEMBER 30,
------------ --------------------- ------------ ----------------------------
1995 1994** 1993 1992++ 1995 1994** 1993 1992 1991++
-------- -------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 10.050 $ 11.030 $ 10.270 $ 10.000 $ 10.210 $ 11.110 $ 10.570 $10.220 $10.000
-------- -------- -------- -------- -------- -------- -------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.465 $ 0.388 $ 0.471 $ 0.192 $ 0.486 $ 0.398 $ 0.480 $ 0.499 $ 0.247
Net realized and unrealized
gain (loss) on investments (0.037) (0.883) 0.885 0.331+++ 0.059 (0.794) 0.745 0.507 0.267
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total income (loss) from
operations $ 0.428 $ (0.495) $ 1.356 $ 0.523 $ 0.545 $ (0.396) $ 1.225 $ 1.006 $ 0.514
-------- -------- -------- -------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.465) $ (0.388) $ (0.471) $ (0.192) $ (0.486) $ (0.398) $ (0.480) $(0.499) $(0.247)
In excess of net investment
income (0.043) (0.079) (0.120) (0.161) (0.019) (0.062) (0.114) (0.144) (0.047)
From net realized gain
on investment transactions -- (0.018) (0.005) -- -- (0.028) (0.058) (0.013) --
In excess of net realized gain
on investment transactions -- -- -- -- -- (0.016) (0.033) -- --
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total distributions $ (0.508) $ (0.485) $ (0.596) $ (0.253) $ (0.505) $ (0.504) $ (0.685) $(0.656) $(0.294)
-------- -------- -------- -------- -------- -------- -------- ------- ------
NET ASSET VALUE, end of year $ 9.970 $ 10.050 $ 11.030 $ 10.270 $ 10.250 $ 10.210 $ 11.110 $10.570 $10.220
======== ======== ======== ======== ======== ======== ======== ======= =======
TOTAL RETURN(1) 4.55% (4.61)% 13.62% 5.00% 5.61% (3.66)% 12.06% 10.13% 4.98%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $188,900 $188,453 $160,790 $50,031 $186,363 $197,082 $188,290 $107,034 $31,222
Ratio of net expenses to
average daily net
assets(2) 1.55% 1.43%+ 1.56% 1.35%+ 1.51% 1.49%+ 1.54% 1.61% 1.29%+
Ratio of net investment
income to average
daily net assets 4.77% 4.42%+ 4.33% 4.13%+ 4.84% 4.49%+ 4.40% 4.65% 5.12%+
PORTFOLIO TURNOVER(3) -- -- 14% 16% -- -- 28% 72% 5%
**For the periods indicated, the operating expenses of each Fund reflect an allocation of expenses to
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 $ 0.184 $ 0.229
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.52%+ 1.66%+
Net investment income 3.96%+ 4.75%+
(See footnotes on page 7.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA FUND NEW JERSEY FUND
-------------------------------------------------- ---------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED SEPTEMBER 30, YEAR ENDED JULY 31, YEAR ENDED SEPTEMBER 30,
---------------------- --------------------------- ------------------- -----------------------------
1995 1994** 1993 1992 1991++ 1995 1994** 1993 1992 1991++
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.040 $10.910 $10.310 $10.080 $10.000 $10.410 $11.350 $10.680 $10.380 $10.000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.470 $ 0.383 $ 0.473 $ 0.505 $ 0.051 $ 0.505 $ 0.421 $ 0.514 $ 0.516 $ 0.363
Net realized and
unrealized gain
(loss) on
investments (0.053) (0.788) 0.749 0.361 0.129+++ (0.009) (0.836) 0.841 0.452 0.487+++
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.417 $(0.405) $ 1.222 $ 0.866 $ 0.180 $ 0.496 $(0.415) $ 1.355 $ 0.968 $ 0.850
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.470) $(0.383) $(0.473) $(0.505) $(0.051) $(0.505) $(0.421) $(0.514) $(0.516) $(0.363)
In excess of net
investment income (0.037) (0.073) (0.125) (0.131) (0.049) (0.035) (0.075) (0.112) (0.124) (0.107)
From net realized gain
on investment
transactions -- (0.009) -- -- -- -- (0.029) (0.059) (0.028) --
In excess of net
realized gain on
investment
transactions -- -- (0.024) -- -- (0.006) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions $(0.507) $(0.465) $(0.622) $(0.636) $(0.100) $(0.546) $(0.525) $(0.685) $(0.668) $(0.470)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year $ 9.950 $10.040 $10.910 $10.310 $10.080 $10.360 $10.410 $11.350 $10.680 $10.380
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 4.41% (3.81)% 12.28% 8.82% 1.56% 5.04% (3.77)% 13.15% 9.64% 8.47%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $78,970 $79,223 $68,004 $26,670 $ 2,467 $404,861 $420,117 $395,421 $235,324 $99,590
Ratio of net expenses
to average daily
net assets(2) 1.52% 1.54%+ 1.59% 1.42% 1.71%+ 1.53% 1.48%+ 1.56% 1.63% 1.78%+
Ratio of net investment
income to average
daily net assets 4.80% 4.38%+ 4.38% 4.74% 2.59%+ 4.97% 4.64%+ 4.66% 4.83% 4.82%+
PORTFOLIO TURNOVER(3) -- -- 16% 25% 3% -- -- 20% 74% 68%
*For the periods indicated, the operating expenses of the Minnesota Fund reflect an allocation of
expenses to 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 $ 0.472 $ 0.438 $ 0.031
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.61% 2.05% 2.72%+
Net investment income 4.37% 4.11% 1.58%+
(See footnotes on page 7.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA FUND TEXAS FUND
--------------------------------------------------------- --------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, SEPTEMBER 30, JULY 31, SEPTEMBER 30,
-------------------------- -------------------------------- ------------------- -----------------
1995 1994** 1993 1992 1991++ 1995 1994** 1993 1992++
-------- -------- -------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year $ 10.340 $ 11.310 $ 10.650 $ 10.350 $ 10.000 $10.210 $11.110 $10.450 $10.000
-------- -------- -------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.507 $ 0.422 $ 0.520 $ 0.531 $ 0.378 $ 0.532 $ 0.436 $ 0.515 $ 0.255
Net realized and unrealized
gain (loss) on investments 0.004+++ (0.841) 0.794 0.430 0.466+++ 0.084 (0.824) 0.787 0.516
-------- -------- -------- -------- -------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.511 $ (0.419) $ 1.314 $ 0.961 $ 0.844 $ 0.616 $(0.388) $ 1.302 $ 0.771
-------- -------- -------- -------- -------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.507) $ (0.422) $ (0.520) $ (0.531) $ (0.378) $(0.532) $(0.436) $(0.515) $(0.255)
In excess of net investment
income (0.024) (0.069) (0.115) (0.130) (0.116) (0.014) (0.076) (0.106) (0.066)
From net realized gain on
investment transactions -- (0.042) (0.019) -- -- -- -- -- --
In excess of net realized gain
on investment transactions -- (0.018) -- -- -- -- -- (0.021) --
-------- -------- -------- -------- -------- ------- ------- ------- -------
Total distributions $ (0.531) $ (0.551) $ (0.654) $ (0.661) $ (0.494) $(0.546) $(0.512) $(0.642) $(0.321)
-------- -------- -------- -------- -------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 10.320 $ 10.340 $ 11.310 $ 10.650 $ 10.350 $10.280 $10.210 $11.110 $10.450
======== ======== ======== ======== ======== ======= ======= ======= =======
TOTAL RETURN(1) 5.24% (3.84)% 12.76% 9.56% 8.37% 6.36% (3.65)% 12.90% 7.51%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $495,856 $530,115 $499,601 $280,193 $100,211 $27,762 $26,677 $16,338 $ 4,020
Ratio of net expenses to
average daily net assets(2) 1.51% 1.46%+ 1.56% 1.64% 1.56%+ 0.99% 0.82%+ 1.06% 1.00%+
Ratio of net investment income
to average daily net assets 5.04% 4.68%+ 4.70% 4.92% 4.93%+ 5.29% 4.81%+ 4.67% 4.61%+
PORTFOLIO TURNOVER(3) -- -- 6% 15% 2% -- -- 7% 11%
*For the periods indicated, the operating expenses of each Fund reflect an allocation of expenses to 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 $ 0.375 $ 0.487 $ 0.359 $ 0.350 $ 0.180
======== ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.60%+ 1.44% 1.67%+ 2.55% 2.35%+
Net investment income 4.89%+ 4.84% 3.96%+ 3.18% 3.26%+
**For the ten months ended July 31, 1994.
+Annualized.
++For the period from the start of business July 25, 1991, July 29, 1991 and April 19, 1991 to September 30, 1991 for the
Arizona, Minnesota and Michigan Funds, respectively, for the period from the start of business August 25, 1992, May 1, 1992 and
March 24, 1992 to September 30, 1992 for the Colorado, Connecticut and Texas Funds, respectively, and for the period from the
start of business January 8, 1991 to September 30, 1991 for the New Jersey and Pennsylvania Funds, respectively.
+++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.
(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 the period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value on
the pay able date. Total return is computed on a non-annualized basis.
(2)Since February 1, 1993, includes the Fund's share of its corresponding Portfolio's allocated expenses.
(3)Portfolio turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to a
Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
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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 ARIZONA MUNICIPALS FUND (the "Arizona Fund") seeks to provide
current income exempt from regular federal income tax and Arizona State personal
income taxes. The Arizona Fund seeks to meet its objective by investing its
assets in the Arizona Municipals Portfolio (the "Arizona Portfolio").
EV MARATHON COLORADO MUNICIPALS FUND (the "Colorado Fund") seeks to provide
current income exempt from regular federal income tax and Colorado State
personal income taxes. The Colorado Fund seeks to meet its objective by
investing its assets in the Colorado Municipals Portfolio (the "Colorado
Portfolio").
EV MARATHON CONNECTICUT MUNICIPALS FUND (the "Connecticut Fund") seeks to
provide current income exempt from regular federal income tax and Connecticut
State personal income taxes. The Connecticut Fund seeks to meet its objective by
investing its assets in the Connecticut Municipals Portfolio (the "Connecticut
Portfolio").
EV MARATHON MICHIGAN MUNICIPALS FUND (the "Michigan Fund") seeks to provide
current income exempt from regular federal income tax and Michigan State and
City income and single business taxes in the form of an investment exempt from
Michigan intangibles tax. The Michigan Fund seeks to meet its objective by
investing its assets in the Michigan Municipals Portfolio (the "Michigan
Portfolio").
EV MARATHON MINNESOTA MUNICIPALS FUND (the "Minnesota Fund") seeks to provide
current income exempt from regular federal income tax and regular Minnesota
State personal income taxes. The Minnesota Fund seeks to meet its objective by
investing its assets in the Minnesota Municipals Portfolio (the "Minnesota
Portfolio").
EV MARATHON NEW JERSEY MUNICIPALS FUND (the "New Jersey Fund") seeks to provide
current income exempt from regular federal income tax and New Jersey State
personal income taxes. The New Jersey Fund seeks to meet its objective by
investing its assets in the New Jersey Municipals Porfolio (the "New Jersey
Portfolio").
EV MARATHON PENNSYLVANIA MUNICIPALS FUND (the "Pennsylvania Fund") seeks to
provide current income exempt from regular federal income tax and Pennsylvania
State and local taxes in the form of an investment exempt from Pennsylvania
personal property taxes. The Pennsylvania Fund seeks to meet its objective by
investing in the Pennsylvania Municipals Portfolio (the "Pennsylvania
Portfolio").
EV MARATHON TEXAS MUNICIPALS FUND (the "Texas Fund") seeks to provide current
income exempt from regular federal income taxes. The Texas Fund seeks to meet
its objective by investing its assets in the Texas Municipals Portfolio (the
"Texas Portfolio"). The State of Texas does not impose a State income tax on
individuals.
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 DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF ITS CORRESPONDING
STATE AND ITS POLITICAL SUBDIVISIONS, AND (EXCEPT FOR THE MINNESOTA FUND) THE
GOVERNMENTS OF PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM, THE INTEREST ON
WHICH IS EXEMPT FROM REGULAR FEDERAL INCOME TAX, IS NOT A TAX PREFERENCE ITEM
UNDER THE FEDERAL ALTERNATIVE MINIMUM TAX (AND, IN THE CASE OF MINNESOTA,
MINNESOTA ALTERNATIVE MINIMUM TAXES) AND IS EXEMPT FROM THE STATE TAXES SET
FORTH ABOVE (IF ANY). In the case of the Connecticut Fund, the Fund may invest
in debt obligations of Puerto Rico, the U.S. Virgin Islands and Guam the
interest on which cannot be taxed by any State under federal law. 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. The Minnesota Portfolio
intends to invest is assets so as to comply with the requirement that, in order
for exempt interest dividends that are derived from interest income from
specified Minnesota sources to be exempt from regular Minnesota State personal
income taxes, 95% or more of the exempt interest dividends that are paid to all
shareholders by the Minnesota Fund must be derived from such specified Minnesota
sources. The Minnesota Portfolio invests in debt obligations issued by or on
behalf of the State of Minnesota and its political or governmental subdivisions,
municipalities, governmental agencies or instrumentalities.
At least 80% of the net assets of the New Jersey Portfolio, at least 75% of the
net assets of the Colorado Portfolio, Connecticut Portfolio and Texas Portfolio,
and at least 70% of the net assets of the Arizona Portfolio, Michigan Portfolio,
Minnesota Portfolio and Pennsylvania 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 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". See "Credit Quality -- Risks." 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% (in the case of the Minnesota
Portfolio, generally 95% or more) 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 (or, in the case of the Minnesota Fund,
Minnesota alternative minimum taxes) for individual investors. A Portfolio may
not invest more than 20% of its net assets in these obligations and obligations
that pay interest subject to regular federal income tax and/or the relevant
State taxes (subject, in the case of the Minnesota Portfolio, to the 95% test
described above). A proposal has been submitted to shareholders of each Fund
which would permit unlimited investment in obligations subject to the federal
alternative minimum tax (and Minnesota alternative minimum tax, in the case of
the Minnesota Fund). If approved at the December 8, 1995 shareholder meeting (or
any adjournment thereof) the new policy would be effective immediately. As at
July 31, 1995, the Portfolios had invested in such obligations as follows (as a
percentage of net assets): Arizona Portfolio (5.2%); Colorado Portfolio (9.3%);
Connecticut Portfolio (7.5%); Michigan Portfolio (5.6%); Minnesota Portfolio
(14.3%); New Jersey Portfolio (18.8%); Pennsylvania Portfolio (18.2%); and Texas
Portfolio (19.5%). Distributions to corporate investors of certain interest
income may also be subject to the federal alternative minimum tax. For corporate
shareholders of the Minnesota Fund, exempt interest dividends attributable to
interest on all municipal obligations (whenever issued) eligible for exemption
from regular Minnesota State personal income taxes are included in taxable
income and in alternative minimum taxable income for purposes of determining the
Minnesota franchise tax imposed on corporations subject to Minnesota taxation.
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 (except the Minnesota 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 a Portfolio invests in lower rated or unrated
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
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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 all 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
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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 July 31, 1995 equivalent to the following annualized
percentage of average daily net assets:
NET ASSETS AS OF
PORTFOLIO JULY 31, 1995 ADVISORY FEE
------------------------------------------------------------------------------
Arizona $144,521,015 0.42%
Colorado 46,077,166 0.28%(1)
Connecticut 195,275,789 0.44%
Michigan 191,262,981 0.44%
Minnesota 82,967,696 0.37%
New Jersey 411,038,422 0.47%
Pennsylvania 502,250,304 0.48%
Texas 28,227,021 0.21%(2)
(1)To enhance the net income of the Colorado Portfolio, BMR made a reduction
of its advisory fee in the amount of $69,064.
(2)To enhance the net income of the Texas Portfolio, BMR made a reduction of
its advisory fee in the full amount of such fee and BMR was allocated
$18,606 of expenses related to the operation of such Portfolio.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
Nicole Anderes has acted as the portfolio manager of the Connecticut Portfolio
since January, 1994. 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 Michigan and Texas
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 Arizona Portfolio
since January 1, 1994 and as portfolio manager of the Colorado Portfolio since
it commenced operations. Ms. Clemson has been a Vice President of Eaton Vance
and BMR since 1993 and an employee of Eaton Vance since 1985.
Robert B. MacIntosh has acted as the portfolio manager of the Minnesota and the
New Jersey Portfolios since they commenced operations. Mr. MacIntosh has been a
Vice President of Eaton Vance since 1991 and of BMR since 1992. Prior to joining
Eaton Vance, he was a portfolio manager at Fidelity Management & Research
Company (1986-1991).
David C. Reilly has acted as the portfolio manager of the Pennsylvania Portfolio
since it 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 (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 July 31, 1995, each Fund paid sales commissions
under its Plan equivalent to .75% (annualized) of such Fund's average daily net
assets. As at July 31, 1995, the outstanding Uncovered Distribution Charges of
the Principal Underwriter on such day calculated under each Fund's Plan amounted
to approximately $5,271,000 (equivalent to 3.7% of net assets on such day) in
the case of the Arizona Fund, $1,925,000 (equivalent to 4.4% of net assets on
such day) in the case of the Colorado Fund, $7,583,000 (equivalent to 4.0% of
net assets on such day) in the case of the Connecticut Fund, $6,378,000
(equivalent to 3.4% of net assets on such day) in the case of the Michigan Fund,
$3,041,000 (equivalent to 3.9% of net assets on such day) in the case of the
Minnesota Fund, $13,741,000 (equivalent to 3.4% of net assets on such day) in
the case of the New Jersey Fund, $17,253,000 (equivalent to 3.5% of net assets
on such day) in the case of the Pennsylvania Fund, and $1,033,000 (equivalent to
3.7% of net assets on such day) in the case of the Texas 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 July 31, 1995,
each Fund made service fee payments as follows (as an annualized percentage of
average daily net assets): Arizona Fund (0.12%); Colorado Fund (0.09%);
Connecticut Fund (0.13%); Michigan Fund (0.15%); Minnesota Fund (0.13%); New
Jersey Fund (0.14%); Pennsylvania Fund (0.15%); and Texas Fund (0.11%).
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
- ------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold. An Authorized Firm may
charge its customers a fee in connection with transactions executed by that
Firm.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: 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 CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE 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
Fund 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, its affiliates, or to their respective employees
or clients. The contingent deferred sales charge will be waived for shares
redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance Shareholder
Services"), (2) as part of a required distribution from a tax-sheltered
retirement plan or (3) following the death of all beneficial owners of such
shares, provided the redemption is requested within one year of death (a death
certificate and other applicable documents may be required). 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 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 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 generally 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
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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 (and, in
the case of the Minnesota Portfolio, generally 95% or more) in the obligations
within its corresponding State, it is susceptible to factors affecting that
State. Each Portfolio (except the Minnesota 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.
ARIZONA. Arizona's economy is primarily based on the service, high-tech
manufacturing, construction and tourism industries, as well as the military. The
State experienced rapid economic and population growth in the 1980s, which has
slowed somewhat in the 1990s. The problems associated with such growth (air
quality, transportation and public infrastructure) continue to be addressed by
the State legislature. The State's unemployment rate in June 1995 was 5.1%,
below the national rate of 5.6%.
The State's ability to raise revenues is limited by Constitutional and
legislative restrictions on property tax increases. There is also a limit on
annual spending. The State does not issue general obligation bonds, but relies
on pay-as-you-go capital outlays, revenue bonds and certificates of
participation to finance projects. Each of these projects is individually rated
based on its specific creditworthiness.
ARIZONA TAXES. Based upon the advice of Arizona tax counsel, the management of
the Fund believes that under Arizona law, dividends paid by the Fund will be
exempt from Arizona income tax imposed on individuals, corporations and estates
and trusts that are subject to Arizona taxation to the extent such dividends are
excluded from gross income for federal income tax purposes and are derived from
interest payments on Arizona obligations. In addition, dividends paid by the
Fund will be exempt from Arizona income tax imposed on such persons, though
included in gross income for federal income tax purposes, to the extent such
dividends are derived from interest payments on direct obligations of the United
States. Other distributions from the Fund, including distributions derived from
net short-term and long-term capital gains, are generally not exempt from
Arizona income tax.
Interest or indebtedness and other related expenses which are incurred or
continued by a shareholder to purchase or carry shares of the Fund generally
will not be deductible for Arizona income tax purposes.
COLORADO. Colorado's economy began to improve in the late 1980s, recovering from
a recession largely caused by contractions in the energy, high technology and
construction industries. The recovery has been fueled, in part, by large public
construction projects, net in-migration, a healthy tourist economy, and
increases in the wholesale and retail trade sector and the general services
sector. Momentum is sufficient that the Office of State Planning and Budgeting
has pronounced that Colorado's "slower growth pattern mimics that of the United
States, although it is not as severe as the nation's", even though most of the
large public works projects are completed and the boom in net migration begins
to ease. Employment in the service and trade industries represents approximately
54.4% of the State's nonagricultural wage and salary jobs, and government
employment represents approximately 15.9%. Manufacturing represents only 10.8%
and, while total jobs in the sector is increasing, manufacturing is slowly
falling as a percentage of total employment, due in part to a concentration in
defense-related production. Colorado's unemployment rate was 3.7% in August
1995, below the national rate of 5.6%. Colorado added 41,000 jobs in the twelve
months ended August 1995, a 2.3% increase from the prior year. There is no State
general obligation debt outstanding.
COLORADO TAXES. In the opinion of Kutak Rock, special Colorado tax counsel to
the Fund, provided that the Fund qualifies as a regulated investment company
under the Code, and the Portfolio is treated as a partnership for federal income
tax purposes, individuals, trusts, estates, and corporations who are holders of
the Fund and who are subject to the Colorado income tax will not be subject to
Colorado tax on 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 and are derived from interest received by the Fund on
obligations of Colorado or any of its political subdivisions issued on or after
May 1, 1980 or (b) obligations of the United States or its possessions to the
extent included in federal taxable income. To the extent that Fund distributions
are attributable to sources not described in the preceding sentences, such as
long or short-term capital gains, such distributions will not be exempt from
Colorado income tax. There are no municipal income taxes in Colorado. As
intangibles, shares in the Fund will be exempt from Colorado property taxes.
CONNECTICUT. Historically, Connecticut's economic structure has been
concentrated in manufacturing, including a heavy component of defense-related
industries, which increases the State's vulnerability to economic cycles and to
declines in federal government defense spending. More recently, Connecticut's
level of manufacturing activity has declined, but this has been partially offset
by extensive urban development, a large insurance sector, relocations of
corporate headquarters to Connecticut (specifically to Fairfield County), and
the extension of other service sectors. As of June 1995, the unemployment rate
in Connecticut on a seasonally adjusted basis was 5.1%, as compared to a rate of
5.6% nationwide.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. The State has about $6 billion of general obligation bonds
outstanding, of which more than half have been issued for general State
purposes. The remaining general obligation bonds were issued for highway
construction, mass transit, and rental housing. Debt indicators have been rising
and are high at $1,850 per capita. Certain Connecticut municipalities have
experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. Regional economic difficulties, reductions
in revenues, and increased expenses could lead to further fiscal problems for
the State and its political subdivisions, authorities, and agencies. This could
result in declines in the value of their outstanding obligations, reductions in
their ability to pay interest and principal thereon, and increases in their
future borrowing costs.
General obligations of the State of Connecticut are rated AA-, Aa and AA+ by
S&P, Moody's and Fitch, respectively.
CONNECTICUT TAXES. In the opinion of Day, Berry & Howard, special Connecticut
tax counsel to the Connecticut Fund, shareholders of the Connecticut Fund will
not be subject to the Connecticut personal income tax on the Connecticut taxable
income of individuals, trusts, and estates in the case of distributions received
from the Connecticut Fund to the extent that such distributions qualify as
exempt-interest dividends for federal income tax purposes and are derived from
interest on tax-exempt obligations issued by or on behalf of the State of
Connecticut and its political subdivisions or the authorities,
instrumentalities, or districts of any of them, or on tax-exempt obligations the
interest on which Connecticut is prohibited from taxing by federal law that are
issued by the governments of Puerto Rico, the U.S. Virgin Islands and Guam.
Other distributions from the Connecticut 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 the Connecticut personal income tax,
except that capital gain dividends derived from obligations issued by or on
behalf of the State of Connecticut or its political subdivisions may not be
subject to such tax. Distributions from the Connecticut Fund that constitute
items of tax preference for purposes of the federal alternative minimum tax will
not be subject to the net Connecticut minimum tax applicable to taxpayers
subject to the Connecticut personal income tax and required to pay the federal
alternative minimum tax, to the extent qualifying as exempt-interest dividends
derived from obligations issued by or on behalf of the State of Connecticut and
its political subdivisions or the authorities, instrumentalities, or districts
of any of them, or from obligations the interest on which Connecticut is
prohibited from taxing by federal law that are issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam, but other distributions from the
Fund that constitute items of tax preference for purposes of the Federal
alternative minimum tax could cause liability for the net Connecticut minimum
tax. The Connecticut Fund will report annually to its shareholders the
percentage and source, on a state-by- state basis, of interest income received
by the Connecticut Fund on municipal bonds during the preceding year.
Distributions from investment income and capital gains, including exempt-
interest dividends derived from interest that is exempt from Connecticut
personal income tax and federal income tax, will be subject to the Connecticut
Corporation Business Tax if received by a corporation subject to such tax,
except for any portion therof that might qualify for the dividends-received
deduction provided under that tax, and all such distributions may be subject to
state and local taxes in states other than Connecticut.
MICHIGAN. Michigan has long had a large representation in and is dominated by
the automobile industry and related industries and tends to be more vulnerable
to economic cycles than other states and the nation as a whole. As of August,
1995 Michigan's unemployment rate was 5.1%, as compared to the national rate of
5.6%. In March, 1994, Michigan voters approved changes to the tax system
resulting in, among other things, an increase in the sales tax rate, a reduction
in the income tax rate and the creation of a statewide property tax.
Michigan's general obligation debt is rated A1, AA and AA, by Moody's, S&P and
Fitch, respectively.
MICHIGAN TAXES. The Michigan Fund has received an opinion from Butzel Long,
special Michigan tax counsel to the Michigan Fund, to the effect that
shareholders of the Michigan Fund who are subject to the Michigan state income
tax, municipal income tax or single business tax will not be subject to such
taxes on their Michigan Fund dividends to the extent that such distributions are
exempt-interest dividends for federal income tax purposes and are attributable
to interest on obligations held by the Michigan Portfolio and allocated to the
Michigan Fund which is exempt from regular federal income tax, is not a tax
preference item under the federal alternative minimum tax and is exempt from
Michigan State and City income taxes, Michigan single business tax and in the
form of an investment exempt from the Michigan intangibles tax ("Michigan
tax-exempt obligations"). Other distributions with respect to shares of the
Michigan Fund including, but not limited to, long or short-term capital gains,
will be subject to the Michigan income tax or single business tax and may be
subject to the city income taxes imposed by certain Michigan cities. The opinion
also provides that shares of the Michigan Fund will be exempt from the Michigan
intangibles tax to the extent the Michigan Portfolio's assets consist of
Michigan tax-exempt obligations and any other securities or obligations that are
exempt from the Michigan intangibles tax.
MINNESOTA. Minnesota relies heavily on a progressive individual income tax and a
retail sales tax for revenue, which results in a fiscal system unusually
sensitive to economic conditions. Economic and State fiscal conditions have
improved. As of August 1995, the State unadjusted unemployment rate was 2.6%
compared with a national rate of 5.6%. Unaudited information indicates that the
State ended fiscal year 1995 with a General Fund balance of $921 million.
The State's general obligation bonds are rated Aa1, AA+ and AAA, by Moody's, S&P
and Fitch, respectively. In March 1993, S&P revised the outlook on Minnesota
debt from Negative to Stable.
MINNESOTA TAXES. In the opinion of Faegre & Benson, special Minnesota tax
counsel to the Fund, provided that the Fund qualifies as a "regulated investment
company" under the Code and subject to the discussion in the paragraph below,
exempt-interest dividends paid by the Fund will be exempt from the regular
Minnesota personal income tax imposed on individuals, estates and trusts that
are subject to Minnesota taxation to the extent that such dividends qualify as
exempt-interest dividends of a regulated investment company under section
852(b)(5) of the Internal Revenue Code which are derived from interest income on
tax-exempt obligations of Minnesota, or its political or governmental
subdivisions, municipalities, governmental agencies or instrumentalities
("Minnesota Sources"); provided, however, such exemption from the regular
Minnesota personal income tax is available only if the portion of the
exempt-interest dividends from such Minnesota Sources that is paid to all
shareholders represents 95% or more of the exempt-interest dividends that are
paid by the Fund. For this purpose, provided that the Portfolio is taxed
federally as a partnership and not as a corporation, the Fund will be treated as
owning its proportionate share of the assets of the Portfolio and the income
derived from such assets. The Fund and the Portfolio intend to invest their
respective assets so that each will meet the 95% test. However, if the 95% test
is not met, all exempt-interest dividends that are paid by the Fund will be
subject to the regular Minnesota personal income tax. Even if the 95% test is
met, to the extent that exempt-interest dividends paid by the Fund are not
derived from the Minnesota Sources referred to in the first sentence of this
paragraph, they will be subject to the regular Minnesota personal income tax.
Other distributions of the Fund, including distributions derived from net
short-term and long-term capital gains, are generally not exempt from the
regular Minnesota personal income tax imposed on individuals, estates and
trusts.
Legislation enacted in 1995 provides that it is the intent of the Minnesota
legislature that interest income on obligations of Minnesota governmental units,
including obligations of the Minnesota Sources described above, and
exempt-interest dividends that are derived from interest income on such
obligations, be included in the net income of individuals, estates, and trusts
for Minnesota income tax purposes if it is judicially determined that the
exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income on
obligations of governmental issuers located in other states, or exempt-interest
dividends derived from such obligations, is so included. This provision applies
to taxable years that begin during or after the calendar year in which such
judicial decision becomes final, regardless of the date on which the obligations
were issued, and other remedies apply for previous taxable years. The United
States Supreme Court recently denied certiorari in an Ohio case which upheld an
exemption for interest income on obligations of Ohio governmental issuers, even
though interest income on obligations of non- Ohio governmental issuers was
subject to tax. However, it cannot be predicted whether a similar case will be
brought in Minnesota or elsewhere, or what the outcome of such case would be.
Minnesota imposes an alternative minimum tax on individuals, estates, and trusts
that is based, in part, on such taxpayers' Federal alternative minimum taxable
income. Accordingly, exempt-interest dividends that constitute tax preference
items for purposes of the Federal alternative minimum tax, even though they are
derived from the Minnesota Sources described above, will be included in the base
upon which such Minnesota alternative minimum tax is computed. In addition, the
entire portion of exempt-interest dividends that is derived from sources other
than the Minnesota Sources described above also is subject to the Minnesota
alternative minimum tax imposed on such individuals, estates and trusts.
Furthermore, should the 95% test that is described above fail to be met, all of
the exempt-interest dividends that are paid by the Fund, including all of those
derived from the Minnesota Sources described above, will be subject to the
Minnesota alternative minimum tax imposed on such shareholders.
Distributions from the Fund will be included in taxable income and in
alternative minimum taxable income, for purposes of determining the Minnesota
franchise tax imposed on corporations subject to Minnesota taxation. Such
distributions may also be taken into account in certain cases in determining the
minimum fee that is imposed on corporations, S corporations, and partnerships.
Interest on indebtedness which is incurred and continued by an individual, a
trust or an estate to purchase or carry shares of the Fund generally will not be
deductible for regular Minnesota personal income tax purposes or Minnesota
alternative minimum tax purposes.
NEW JERSEY. The fiscal year 1995 budget included total spending of $15.5
billion. However, the proposed fiscal year 1996 budget (for the fiscal period
ending June 30, 1996) includes total spending of $15.987 billion, or a 3.14%
increase over fiscal 1995. In addition, New Jersey has adopted a 10% personal
income tax cut retroactive to January 1, 1995. Furthermore, on June 26, 1995,
the New Jersey Legislature passed an additional 15% reduction to take effect
January 1, 1996. State officials estimate the revenue loss resulting from these
tax cuts at over $1 billion for fiscal 1996. To accommodate the tax cut, the
fiscal 1996 budget would rely on non-recurring revenues and the use of prior
years' surplus. Also a major focus of the spending reductions has been employer
contributions to retiree health care and pension systems, which were cut by over
$863 million in fiscal 1995. There can be no assurance that the tax cuts will
not have an adverse impact on the State's finances and the demand for municipal
bonds in the State.
New Jersey's general obligation debt is rated Aa1, AA+ and AA+ by Moody's, S&P
and Fitch, respectively.
NEW JERSEY TAXES. The New Jersey Fund intends to satisfy New Jersey's statutory
requirements for treatment as a "Qualified Investment Fund." The Fund has
obtained an opinion of its special tax counsel, Wilentz, Goldman & Spitzer,
P.A., that, provided the New Jersey Fund limits its investments to those
described in this Prospectus and otherwise satisfies such statutory
requirements, shareholders of the New Jersey Fund which are individuals, estates
or trusts will not be required to include in their New Jersey gross income
distributions from the New Jersey Fund that are attributable to interest or gain
realized by the New Jersey Fund from obligations the interest on which is exempt
from regular federal income tax, is not a tax preference item under the federal
minimum tax and is exempt from New Jersey State personal income tax or other
obligations statutorily free from New Jersey taxation. However, with regard to
corporate shareholders, such counsel is also of the opinion that distributions
from the New Jersey Fund will not be excluded from net income and shares of the
New Jersey Fund will not be excluded from investment capital in determining New
Jersey corporation business (franchise) and corporation income taxes for
corporate shareholders.
PENNSYLVANIA. Pennsylvania has long had a large representation in the steel,
mining and manufacturing industries and adverse conditions in those or other
significant industries within Pennsylvania may from time to time have a
correspondingly adverse effect on specific issuers within Pennsylvania or on
anticipated revenue to the Commonwealth. In recent years Pennsylvania's economy
has become more diversified with major new sources of growth in the service
sector, including trade, medical and the health services, education and
financial institutions. The unadjusted unemployment rate for Pennsylvania was
5.5% for August 1995 versus the national rate of 5.6%.
The Governor's fiscal year 1996 budget contained no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending
increased 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million. The State Tax
Stabilization Reserve Fund had a balance at March 31, 1995 of $65.3 million. The
fiscal year 1996 budget projects a $3.2 million fiscal year-end unappropriated
surplus.
Pennsylvania's general obligation debt is rated "AA-" by S&P and Fitch and "A1"
by Moody's.
PENNSYLVANIA TAXES. Interest derived by the Pennsylvania Fund from obligations
which are statutorily free from taxation in Pennsylvania ("Exempt Obligations")
are not taxable on pass through to shareholders for purposes of the Pennsylvania
personal income tax. The term "Exempt Obligations" includes (i) those
obligations issued by the Commonwealth of Pennsylvania and its political
subdivisions, agencies and instrumentalities, the interest from which is
statutorily free from state taxation in the Commonwealth of Pennsylvania, and
(ii) certain qualifying obligations of U.S. territories and possessions, or U.S.
Government obligations. Distributions attributable to most other sources,
including capital gains, will not be exempt from Pennsylvania personal income
tax.
Corporate shareholders that are subject to the Pennsylvania corporate net income
tax will not be subject to corporate net income tax on distributions of interest
made by the Pennsylvania Fund, provided such distributions are attributable to
Exempt Obligations. Distributions of capital gain attributable to Exempt
Obligations are subject to the Pennsylvania corporate net income tax. An
investment in the Pennsylvania Fund is also exempt from the Pennsylvania Gross
Premiums tax.
Shares of the Pennsylvania Fund which are held by individual shareholders who
are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the obligations
held by the Pennsylvania Portfolio consist of Exempt Obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal property
taxes.
For individual shareholders who are residents of the City of Philadelphia,
distributions of interest derived from Exempt Obligations will not be taxable
for purposes of the Philadelphia School District Investment Net Income Tax
("Philadelphia School District Tax"), provided that the Pennsylvania Portfolio
reports to its investors the percentage of Exempt Obligations held by it for the
year. The Pennsylvania Portfolio will report such percentage to its investors.
TEXAS. Employment in Texas continued to expand during the 1990s. During August
1995, non-farm employment in Texas reached 8.92 million. Over the past year,
Texas has gained more than 126,000 jobs, an increase of 1.4%, with most of the
growth occurring in the services and trade sectors of the economy. Texas mining
employment (which is 95% oil and gas) has, however, experienced a slight decline
of 4.7%. Unemployment as of August, 1995 was 6.7% versus the national rate of
5.6%.
The State finished the fiscal year ended August 31, 1994 with a 200 million
operating deficit in the General Revenue Fund. However, there was still a $587
million balance in the General Revenue Fund, or 3.2% of expenditures.
General obligations of Texas are rated AA, AA and AA+ by S&P, Moody's and Fitch,
respectively. Both S&P and Fitch have a stable outlook for the State.
TEXAS TAXES. Texas does not impose a state income tax on individuals. To the
extent that distributions from the Texas Fund are included in a corporate
shareholder's surplus, they will be subject to the Texas franchise tax that is
based on net worth.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for June, 1995 was approximately 13.9%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance on
nonrecurring revenues and economic weakness led S&P to change its outlook from
stable to negative.
<PAGE>
[LOGO]
EATON VANCE
=================
MUTUAL FUNDS
EV MARATHON MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
PROSPECTUS
DECEMBER 1, 1995
EV MARATHON ARIZONA MUNICIPALS FUND
EV MARATHON COLORADO MUNICIPALS FUND
EV MARATHON CONNECTICUT MUNICIPALS FUND
EV MARATHON MICHIGAN MUNICIPALS FUND
EV MARATHON MINNESOTA MUNICIPALS FUND
EV MARATHON NEW JERSEY MUNICIPALS FUND
EV MARATHON PENNSYLVANIA MUNICIPALS FUND
EV MARATHON TEXAS MUNICIPALS FUND
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 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-TFC12/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV TRADITIONAL
MUNICIPAL FUNDS
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND
EV TRADITIONAL NEW JERSEY MUNICIPALS FUND
EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND
- ------------------------------------------------------------------------------
THE EV TRADITIONAL 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 December 1,
1995 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>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Page Page
Shareholder and Fund Expenses 2 How to Redeem Fund Shares 13
The Funds' Financial Highlights 3 Reports to Shareholders 14
The Funds' Investment Objectives 4 The Lifetime Investing Account/Distribution
How the Funds and the Portfolios Invest Options 14
their Assets 4 The Eaton Vance Exchange Privilege 15
Organization of the Funds and the Portfolios 8 Eaton Vance Shareholder Services 16
Management of the Funds and the Portfolios 9 Distributions and Taxes 17
Service Plans 11 Performance Information 18
Valuing Fund Shares 11 Statement of Intention and Escrow Agreement 18
How to Buy Fund Shares 12 Appendix -- State Specific Information 20
- --------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED DECEMBER 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemptions None
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
----------------------------------------------------------------------------------------------------------------
CONNECTICUT NEW JERSEY PENNSYLVANIA
FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Adviser Fee 0.44% 0.47% 0.45%
Rule 12b-1 Service Fees (Service Plan) 0.01 0.01 0.01
Other Expenses 0.06 0.02 0.00
---- ---- ----
Total Operating Expenses 0.51% 0.50% 0.46%
==== ==== ====
<CAPTION>
EXAMPLE
----------------------------------------------------------------------------------------------------------------
An investor would pay the following maximum initial sales charge and expenses) on a $1,000 investment, assuming
(a) 5% annual return and (b) redemption at the end of each period:
----------------------------------------------------------------------------------------------------------------
CONNECTICUT NEW JERSEY PENNSYLVANIA
FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $43 $42 $42
3 Years 53 53 52
5 Years 65 64 62
10 Years 99 98 93
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year. Absent an
expense allocation (in the case of Other Expenses) expenses of the following
funds would have been the following percentage of average daily net assets:
Connecticut Fund Other Expenses would have been 3.00%; New Jersey Fund Other
Expenses would have been 1.97%; and Pennsylvania Fund Other Expenses would have
been 2.61%.
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 Example 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".
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 10.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of 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>
- -------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JULY 31,
-------------------------------------------------------------
CONNECTICUT FUND NEW JERSEY FUND PENNSYLVANIA FUND
----------------- ------------------ ------------------
1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of period $10.100 $10.000 $ 9.940 $10.000 $10.050 $10.000
------- ------- ------- ------- ------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.553 $ 0.153 $ 0.576 $ 0.161 $ 0.577 $ 0.044
Net realized and unrealized gain (loss) on investments 0.012 0.111 0.054 (0.044)++ (0.062)++ 0.104
------- ------- ------- ------- ------- -------
Total income from operations $ 0.565 $ 0.264 $ 0.630 $ 0.117 $ 0.515 $ 0.148
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.553) $(0.153) $(0.576) $(0.161) $(0.577) $(0.044)
In excess of net investment income (0.022) (0.011) (0.014) (0.016) (0.008) (0.054)
------- ------- ------- ------- ------- -------
Total distributions $(0.575) $(0.164) $(0.590) $(0.177) $(0.585) $(0.098)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of period $10.090 $10.100 $ 9.980 $ 9.940 $ 9.980 $10.050
======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.89% 2.66% 6.62% 1.19% 5.41% 1.49%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000 omitted) $ 1,115 $ 163 $ 1,712 $ 296 $ 1,487 $ 95
Ratio of net expenses to average daily net assets(2) 0.51% 0.48%+ 0.50% 0.43%+ 0.46% 1.69%+
Ratio of net investment income to average daily net assets 5.46% 4.83%+ 5.65% 4.11%+ 5.58% 2.76%+
** For the periods indicated, the operating expenses of the Funds reflect an allocation of expenses to the Administrator.
Had such actions not been taken, net investment income (loss) per share and the ratios would have been:
NET INVESTMENT INCOME (LOSS) PER SHARE $ 0.249 $(0.045) $ 0.375 $(0.237) $ 0.307 $(0.258)
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 3.51% 6.73%+ 2.47% 10.59%+ 3.07% 20.95%+
Net investment income (loss) 2.46% (1.42)%+ 3.68% (6.05)%+ 2.97% (16.50)%+
Footnotes:
- ----------
* For the Connecticut, New Jersey and Pennsylvania Funds, the Financial Highlights are for the period from the start of
business, April 19, 1994, April 13, 1994 and June 1, 1994, respectively, to July 31, 1994.
+ Annualized.
++ The per share amount is not in accord with the net realized and unrealized gain 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 purchase at the net asset value on the first day and a sale at the net asset value
on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Total return is computed on a non-annualized basis.
(2) Includes the Fund's share of its corresponding Portfolio's allocated expenses.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are rated
at least investment grade by a major rating agency or, if unrated, determined to
be of at least investment grade quality by the Investment Adviser. Each
Portfolio has the same investment objective as its corresponding Fund.
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND (the "Connecticut Fund") seeks to
provide current income exempt from regular federal income tax and Connecticut
State personal income taxes. The Connecticut Fund seeks to meet its objective
by investing its assets in the Connecticut Municipals Portfolio (the
"Connecticut Portfolio").
EV TRADITIONAL NEW JERSEY MUNICIPALS FUND (the "New Jersey Fund") seeks to
provide current income exempt from regular federal income tax and New Jersey
State personal income taxes. The New Jersey Fund seeks to meet its objective
by investing its assets in the New Jersey Municipals Portfolio (the "New
Jersey Portfolio").
EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND (the "Pennsylvania Fund") seeks to
provide current income exempt from regular federal income tax and Pennsylvania
State and local taxes in the form of an investment exempt from Pennsylvania
personal property taxes. The Pennsylvania Fund seeks to meet its objective by
investing its assets in the Pennsylvania Municipals Portfolio (the
"Pennsylvania Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF ITS
CORRESPONDING STATE AND ITS POLITICAL SUBDIVISIONS, AND THE GOVERNMENTS OF
PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX, IS NOT A TAX PREFERENCE ITEM UNDER THE
FEDERAL ALTERNATIVE MINIMUM TAX, AND IS EXEMPT FROM THE RELEVANT STATE TAXES
SET FORTH ABOVE. In the case of the Connecticut Fund, the Fund may invest in
debt obligations of the governments of Puerto Rico, the U.S. Virgin Islands
and Guam, the interest on which cannot be taxed by any state under federal
law. The foregoing policy is a fundamental policy of each Fund and its
corresponding Portfolio and 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%, 80% and 70% of the net assets of the Connecticut Portfolio, New
Jersey Portfolio and Pennsylvania Portfolio, respectively, 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 Baa or BBB 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. A Portfolio may
not invest more than 20% of its net assets in these obligations and
obligations that pay interest subject to regular federal income tax and/or the
relevant State taxes. A proposal has been submitted to shareholders of each
Fund which would permit unlimited investment in obligations subject to the
federal alternative minimim tax. If approved at the December 8, 1995
shareholder meeting (or any adjournment thereof), the new policy would be
effective immediately. As at July 31, 1995, the Portfolios had invested in
such obligations as follows (as a percentage of net assets): Connecticut
Portfolio (7.5%); New Jersey Portfolio (18.8%); and Pennsylvania Portfolio
(18.2%). 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 a Portfolio invests in lower
rated or unrated 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.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and
the nonfundamental investment policies of each Fund and Portfolio may be
changed by the Trustees of the Trust and the Portfolio without obtaining the
approval of the shareholders of that Fund or the investors in that Portfolio,
as the case may be. Any such change of an investment objective will be
preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. In the event a
Fund withdraws all of its assets from its corresponding Portfolio, or the
Board of Trustees of the Trust determines that the investment objective of
such Portfolio is no longer consistent with the investment objective of the
Fund, such Trustees would consider what action might be taken, including
investing all the assets of such Fund in another pooled investment entity or
retaining an investment adviser to manage the Fund's assets in accordance with
its investment objective. A Fund's investment performance may be affected by a
withdrawal of all its assets from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in a Portfolio may be adversely affected by
the actions of a larger investor investing in the Portfolio. For example, if a
large investor withdraws from a Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured mutual
funds which have large or institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a
separate investment company are a relatively new development in the mutual
fund industry and, therefore, the Funds may be subject to additional
regulations than historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolios as partnerships for Federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever a Fund as an
investor in a Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. A Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in a Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the corresponding Fund to withdraw its investment
in the Portfolio or take other appropriate action. Any such withdrawal could
result in a distribution "in kind" of portfolio securities (as opposed to a
cash distribution from the Portfolio). If securities are distributed, a Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of a Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund
and its corresponding Portfolio, and it is possible that the creation of
separate Boards may be considered. For further information concerning the
Trustees and officers of each of the Trust and the Portfolios, see the
Statement of Additional Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs and furnishes
for the use of each Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
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 advisory fees for the fiscal year ended July 31, 1995
equivalent to the following annualized percentage of average daily net assets:
NET ASSETS AS OF
PORTFOLIO JULY 31, 1995 ADVISORY FEE
---------------------------------------------------------------------------
Connecticut $195,275,789 0.44%
New Jersey 411,038,422 0.47%
Pennsylvania 502,250,304 0.48%
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real
estate investment, consulting and management, and development of precious
metals properties.
Nicole Anderes has acted as the portfolio manager of the Connecticut Portfolio
since January, 1994. 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).
Robert B. MacIntosh has acted as the portfolio manager of the New Jersey
Portfolio since it commenced operations. Mr. MacIntosh has been a Vice
President of Eaton Vance since 1991 and of BMR since 1992. Prior to joining
Eaton Vance, he was a portfolio manager at Fidelity Management & Research
Company (1986-1991).
David C. Reilly has acted as the portfolio manager of the Pennsylvania
Portfolio since it commenced operations. Mr. Reilly has been 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.
SERVICE PLANS
- ------------------------------------------------------------------------------
In addition to advisory fees and other expenses, each Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the requirements of
Rule 12b-1 under the 1940 Act and the service fee requirements of the revised
sales charge rule of the National Association of Securities Dealers, Inc. EACH
FUND'S PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE PAYMENTS FOR PERSONAL
SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO THE PRINCIPAL
UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND OTHER PERSONS IN
AMOUNTS NOT EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR ANY
FISCAL YEAR. The Trustees of the Trust have initially implemented each Fund's
Plan by authorizing the Fund to make service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .20% of the
Fund's average daily net assets for any fiscal year which is based on the
value of Fund shares sold by such persons and remaining outstanding for at
least twelve months. 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. For the fiscal year ended July
31, 1995, each Fund made service fee payments (as a percentage of average
daily net assets) as follows: Connecticut Fund (0.01%); New Jersey Fund
(0.01%); and Pennsylvania Fund (0.01%). The Plan is described further in the
Statement of Additional Information.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering
price based thereon. It is the Authorized Firms' responsibility to transmit
orders promptly to the Principal Underwriter, which is a wholly-owned
subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms
at the effective public offering price, which price is based on the effective
net asset value per share plus the applicable sales charge. A Fund receives
the net asset value, while the sales charge is divided between the Authorized
Firm and the Principal Underwriter. The Principal Underwriter will furnish the
names of Authorized Firms to an investor upon request. An Authorized Firm may
charge its customers a fee in connection with transactions executed by that
Firm. A Fund may suspend the offering of shares at any time and may refuse an
order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement
to purchase additional shares during a 13-month period or special purchase
programs. Complete details of how investors may purchase shares at reduced
sales charges under a Statement of Intention or Right of Accumulation are
available from Authorized Firms or from the Principal Underwriter.
The current sales charges and dealer commissions are:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER COMMISSION
AS PERCENTAGE OF AS PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 3.75% 3.90% 4.00%
$50,000 but less than $100,000 2.75 2.83 3.00
$100,000 but less than $250,000 2.25 2.30 2.50
$250,000 but less than $500,000 1.75 1.78 2.00
$500,000 but less than $1,000,000 1.25 1.27 1.50
$1,000,000 or more 0.00* 0,00* 0.25**
* Fund shares purchased before March 27, 1995, at net asset value with no initial sales charge by
virtue of the purchase having been in the amount of $1 million or more may be subject to a
contingent deferred sales charge upon redemption.
** The Principal Underwriter may pay Authorized Firms that initiate and are responsible for
purchases of $1 million or more a commission at an annual rate of .25% of average daily net
assets paid quarterly for one year.
</TABLE>
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in
the Securities Act of 1933. The Principal Underwriter may, from time to time,
at its own expense, provide additional incentives to Authorized Firms which
employ registered representatives who sell Fund shares and/or shares of other
funds distributed by the Principal Underwriter. In some instances, such
additional incentives may be offered only to certain Authorized Firms whose
representatives sell or are expected to sell significant amounts of shares.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: 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".
Shares of a Fund may be sold at net asset value to current and retired
Directors and Trustees of Eaton Vance funds, including the Portfolios; to
officers and employees and clients of Eaton Vance and its affiliates; to
registered representatives and employees of Authorized Firms; and bank
employees who refer customers to registered representatives of Authorized
Firms; and to such persons' spouses and children under the age of 21 and their
beneficial accounts. Shares may also be issued at net asset value (1) in
connection with the merger of an investment company with a Fund, (2) to
investors making an investment as part of a fixed fee program whereby an
entity unaffiliated with the Investment Adviser provides multiple investment
services, such as management, brokerage and custody, (3) where the amount
invested represents redemption proceeds from a mutual fund unaffiliated with
Eaton Vance, if the redemption occurred no more than 60 days prior to the
purchase of Fund shares and the redeemed shares were subject to a sales
charge, and (4) to an investor making an investment through an investment
adviser, financial planner, broker or other intermediary that charges a fee
for its services and has entered into an agreement with a Fund or its
Principal Underwriter.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at the applicable public offering price as shown above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold by IBT as agent for the account of
their owner on the day of their receipt by IBT or as soon thereafter as
possible. The number of Fund shares to be issued in exchange for securities
will be the aggregate proceeds from the sale of such securities, divided by
the applicable public offering price per Fund share on the day such proceeds
are received. Eaton Vance will use reasonable efforts to obtain the then
current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult
his or her tax adviser with respect to the particular Federal, State and local
tax consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
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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 and reduced by the
amount of any federal income tax required to be withheld. Although each Fund
normally expects to make payment in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to
pay the redemption price of shares of a Fund, either totally or partially, by
a distribution in kind of readily marketable securities withdrawn by that Fund
from its corresponding Portfolio. The securities so distributed would be
valued pursuant to the Portfolio's valuation procedures. If a shareholder
received a distribution in kind, the shareholder could incur brokerage or
other charges in converting the securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It
is the Authorized Firm's responsibility to transmit promptly repurchase orders
to EVD. Throughout this Prospectus, the word "redemption" is generally meant
to include a repurchase.
If shares were recently purchased, the proceeds of redemption (or repurchase)
will not be sent until the check (including a certified or cashier's check)
received for the shares purchased has cleared. Payment for shares tendered for
redemption may be delayed up to 15 days from the purchase date when the
purchase check has not yet cleared. Redemptions or repurchases may result in a
taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing federal and State tax
returns. Consistent with applicable law, duplicate mailings of shareholder
reports and certain other Fund information to shareholders residing at the
same address may be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS'
TRANSFER AGENT, 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 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 currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any
fund in the Eaton Vance Traditional Group of Funds on the basis of the net
asset value per share of each fund at the time of the exchange, (plus, in the
case of an exchange made within six months of the date of purchase, an amount
equal to the difference, if any, between the sales charge previously paid on
the shares being exchanged and the sales charge payable on the shares being
acquired). Such exchange offers are available only in States where shares of
the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
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.
Shares of certain other funds for which Eaton Vance acts as investment adviser
or administrator may be exchanged for Fund shares on the basis of the net
asset value per share of each fund at the time of 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, is 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 the
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
Statement of Intention: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "Statement of Intention and
Escrow Agreement."
Right of Accumulation: Purchases may qualify for reduced sales charges when
the current market value of holdings (shares at current offering price), plus
new purchases, reaches $50,000 or more. Shares of the Eaton Vance funds listed
under "The Eaton Vance Exchange Privilege" may be combined under the Statement
of Intention and Right of Accumulation.
Withdrawal Plan: A Shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A
minimum deposit of $5,000 in shares is required. The maintenance of a
withdrawal plan concurrently with purchases of additional shares would be
disadvantageous because of the sales charge included in such purchases.
Reinvestment Privilege: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST AT NET ASSET VALUE ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE
TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, or,
provided that the shares repurchased or redeemed have been held for at least
60 days, in shares of any of the other funds offered by the Principal
Underwriter subject to an initial sales charge, provided that the reinvestment
is effected within 60 days after such repurchase or redemption, and the
privilege has not been used more than once in the prior 12 months. Shares are
sold to a reinvesting shareholder at the next determined net asset value
following timely receipt of a written purchase order by the Principal
Underwriter or by the fund the shares of which are being purchased (or by such
fund's transfer agent). The privilege is also available to shareholders of the
funds listed under "The Eaton Vance Exchange Privilege" who wish to reinvest
such redemption or repurchase proceeds in shares of a Fund. To the extent that
any shares of the Fund are sold at a loss and the proceeds are reinvested in
shares of the Fund (or other shares of the Fund are acquired within the period
beginning 30 days before and ending 30 days after the date of the redemption)
some or all of the loss generally will not be allowed as a tax deduction.
Shareholders should consult their tax advisers concerning the tax consequences
of reinvestments.
DISTRIBUTIONS AND TAXES
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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 last day of each month or
the next business day thereafter. Each Fund anticipates that for tax purposes
the entire distribution, whether paid in cash or reinvested in additional
shares of the Fund, will constitute tax-exempt income to shareholders, except
for the proportionate part of the distribution that may be considered taxable
income if the Fund has taxable income during the calendar year. Shareholders
reinvesting the monthly distribution should treat the amount of the entire
distribution as the tax cost basis of the additional shares acquired by reason
of such reinvestment. Daily distribution crediting will commence on the day
that collected funds for the purchase of Fund shares are available at the
Transfer Agent. Shareholders of a Fund will receive timely federal income tax
information as to the tax-exempt or taxable status of all distributions made
by the Fund during the calendar year. A Fund's net realized capital gains, if
any, consist of the net realized capital gains allocated to the Fund by its
corresponding Portfolio for tax purposes, after taking into account any
available capital loss carryovers; a Fund's net realized capital gains, if
any, will be distributed at least once a year, usually in December.
Sales charges paid upon a purchase of Fund shares cannot be taken into account
for purposes of determining gain or loss on a redemption or exchange of the
shares before the 91st day after their purchase to the extent shares of a Fund
or of another fund are subsequently acquired pursuant to a Fund's reinvestment
or exchange privilege. Any disregarded amounts will result in an adjustment to
the shareholder's tax basis in some or all of any other shares acquired.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS
PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS ALSO 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
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FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. Each Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by 1 minus the tax rate. Each
Fund's average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compounded rate of
return (including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) for the stated period and annualizing the
result. The average annual total return calculation assumes that the maximum
sales charge is deducted from the initial $1,000 purchase order and that all
dividends are reinvested at the net asset value on the reinvestment dates
during the period. The Funds 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. Each Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio used to annualize the most recent
monthly distribution and reinvesting the resulting amount for a full year on
the basis of such ratio. The effective distribution rate will be higher than
the distribution rate because of the compounding effect of the assumed
reinvestment. Investors should note that a Fund's yield is calculated using a
standardized formula the income component of which is computed from the yields
to maturity of all debt obligations held by the Portfolio based on prescribed
methods (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis), whereas the
distribution rate is based on a Fund's last monthly distribution which tends
to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month.
Each Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which
is based on a Fund's net asset value per share would be reduced if a sales
charge were taken into account. The Fund's performance may be compared in
publications to the performance of various indices and investments for which
reliable data is available, and to averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's current yield, total return,
distribution rate or effective distribution rate for any prior period should
not be considered a representation of what an investment may earn or what the
Fund's yield, total return, distribution rate or effective distribution rate
may be in any future period. If the expenses of a Fund or its corresponding
Portfolio are paid by Eaton Vance, the Fund's performance will be higher.
STATEMENT OF INTENTION AND ESCROW AGREEMENT
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TERMS OF ESCROW. If the investor, on an application, makes a Statement of
Intention to invest a specified amount over a thirteen month period, then out
of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the application shall be held in escrow by the
escrow agent in the form of shares (computed to the nearest full share at the
public offering price applicable to the initial purchase hereunder) registered
in the investor's name. All income dividends and capital gains distributions
on escrowed shares will be paid to the investor or to the investor's order.
When the minimum investment so specified is completed, the escrowed shares
will be delivered to the investor. If the investor has an accumulation account
the shares will remain on deposit under the investor's account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to EVD any difference between the
sales charge on the amount specified and on the amount actually purchased. If
the investor does not within 20 days after written request by EVD or the
Authorized Firm pay such difference in sales charge, the escrow agent will
redeem an appropriate number of the escrowed shares in order to realize such
difference. Full shares remaining after any such redemption together with any
excess cash proceeds of the shares so redeemed will be delivered to the
investor or to the investor's order by the escrow agent.
In signing the application, the investor irrevocably constitutes and appoints
the escrow agent the investor's attorney to surrender for redemption any or
all escrowed shares with full power of substitution in the premises.
PROVISION FOR RETROACTIVE PRICE ADJUSTMENT. If total purchases made under this
Statement are large enough to qualify for a lower sales charge than that
applicable to the amount specified, all transactions will be computed at the
expiration date of this Statement to give effect to the lower charge. Any
difference in sales charge will be refunded to the investor in cash, or
applied to the purchase of additional shares at the lower charge if specified
by the investor. This refund will be made by the Authorized Firm and by EVD.
If at the time of the recomputation a firm other than the original firm is
placing the orders, the adjustment will be made only on those shares purchased
through the firm then handling the investor's account.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets (and,
in the case of the Minnesota Portfolio, generally 95% or more) in the
obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio (except the Minnesota 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.
CONNECTICUT. Historically, Connecticut's economic structure has been
concentrated in manufacturing, including a heavy component of defense-related
industries, which increases the State's vulnerability to economic cycles and
to declines in federal government defense spending. More recently,
Connecticut's level of manufacturing activity has declined, but this has been
partially offset by extensive urban development, a large insurance sector,
relocations of corporate headquarters to Connecticut (specifically to
Fairfield County), and the extension of other service sectors. As of June
1995, the unemployment rate in Connecticut on a seasonally adjusted basis was
5.1%, as compared to a rate of 5.6% nationwide.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. The State has about $6 billion of general obligation bonds
outstanding, of which more than half have been issued for general State
purposes. The remaining general obligation bonds were issued for highway
construction, mass transit, and rental housing. Debt indicators have been
rising and are high at $1,850 per capita. Certain Connecticut municipalities
have experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. This could result in declines in the value of their outstanding
obligations, reductions in their ability to pay interest and principal
thereon, and increases in their future borrowing costs.
General obligations of the State of Connecticut are rated AA-, Aa and AA+
by S&P, Moody's and Fitch, respectively.
CONNECTICUT TAXES. In the opinion of Day, Berry & Howard, special Connecticut
tax counsel to the Connecticut Fund, shareholders of the Connecticut Fund will
not be subject to the Connecticut personal income tax on the Connecticut
taxable income of individuals, trusts, and estates in the case of
distributions received from the Connecticut Fund to the extent that such
distributions qualify as exempt-interest dividends for federal income tax
purposes and are derived from interest on tax-exempt obligations issued by or
on behalf of the State of Connecticut and its political subdivisions or the
authorities, instrumentalities, or districts of any of them, or on tax-exempt
obligations the interest on which Connecticut is prohibited from taxing by
federal law that are issued by the governments of Puerto Rico, the U.S. Virgin
Islands and Guam.
Other distributions from the Connecticut 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 the Connecticut personal
income tax, except that capital gain dividends derived from obligations issued
by or on behalf of the State of Connecticut or its political subdivisions may
not be subject to such tax. Distributions from the Connecticut Fund that
constitute items of tax preference for purposes of the federal alternative
minimum tax will not be subject to the net Connecticut minimum tax applicable
to taxpayers subject to the Connecticut personal income tax and required to
pay the federal alternative minimum tax, to the extent qualifying as exempt-
interest dividends derived from obligations issued by or on behalf of the
State of Connecticut and its political subdivisions or the authorities,
instrumentalities, or districts of any of them, or from obligations the
interest on which Connecticut is prohibited from taxing by federal law that
are issued by the governments of Puerto Rico, the U.S. Virgin Islands and
Guam, but other distributions from the Fund that constitute items of tax
preference for purposes of the Federal alternative minimum tax could cause
liability for the net Connecticut minimum tax. The Connecticut Fund will
report annually to its shareholders the percentage and source, on a state-by-
state basis, of interest income received by the Connecticut Fund on municipal
bonds during the preceding year.
Distributions from investment income and capital gains, including exempt-
interest dividends derived from interest that is exempt from Connecticut
personal income tax and federal income tax, will be subject to the Connecticut
Corporation Business Tax if received by a corporation subject to such tax,
except for any portion therof that might qualify for the dividends-received
deduction provided under that tax, and all such distributions may be subject
to state and local taxes in states other than Connecticut.
NEW JERSEY. The fiscal year 1995 budget included total spending of $15.5
billion. However, the proposed fiscal year 1996 budget (for the fiscal period
ending June 30, 1996) includes total spending of $15.987 billion, or a 3.14%
increase over fiscal 1995. In addition, New Jersey has adopted a 10% personal
income tax cut retroactive to January 1, 1995. Furthermore, on June 26, 1995,
the New Jersey Legislature passed an additional 15% reduction to take effect
January 1, 1996. State officials estimate the revenue loss resulting from
these tax cuts at over $1 billion for fiscal 1996. To accommodate the tax cut,
the fiscal 1996 budget would rely on non-recurring revenues and the use of
prior years' surplus. Also a major focus of the spending reductions has been
employer contributions to retiree health care and pension systems, which were
cut by over $863 million in fiscal 1995. There can be no assurance that the
tax cuts will not have an adverse impact on the State's finances and the
demand for municipal bonds in the State.
New Jersey's general obligation debt is rated Aa1, AA+ and AA+ by
Moody's, S&P and Fitch, respectively.
NEW JERSEY TAXES. The New Jersey Fund intends to satisfy New Jersey's
statutory requirements for treatment as a "Qualified Investment Fund." The
Fund has obtained an opinion of its special tax counsel, Wilentz, Goldman &
Spitzer, P.A., that, provided the New Jersey Fund limits its investments to
those described in this Prospectus and otherwise satisfies such statutory
requirements, shareholders of the New Jersey Fund which are individuals,
estates or trusts will not be required to include in their New Jersey gross
income distributions from the New Jersey Fund that are attributable to
interest or gain realized by the New Jersey Fund from obligations the interest
on which is exempt from regular federal income tax, is not a tax preference
item under the federal minimum tax and is exempt from New Jersey State
personal income tax or other obligations statutorily free from New Jersey
taxation. However, with regard to corporate shareholders, such counsel is also
of the opinion that distributions from the New Jersey Fund will not be
excluded from net income and shares of the New Jersey Fund will not be
excluded from investment capital in determining New Jersey corporation
business (franchise) and corporation income taxes for corporate shareholders.
PENNSYLVANIA. Pennsylvania has long had a large representation in the steel,
mining and manufacturing industries and adverse conditions in those or other
significant industries within Pennsylvania may from time to time have a
correspondingly adverse effect on specific issuers within Pennsylvania or on
anticipated revenue to the Commonwealth. In recent years Pennsylvania's
economy has become more diversified with major new sources of growth in the
service sector, including trade, medical and the health services, education
and financial institutions. The unadjusted unemployment rate for Pennsylvania
was 5.5% for August 1995 versus the national rate of 5.6%.
The Governor's fiscal year 1996 budget contained no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending
increased 2.3% over fiscal year 1995 appropriations. The fiscal year 1996
budget included tax reductions of approximately $214.8 million. The State Tax
Stabilization Reserve Fund had a balance at March 31, 1995 of $65.3 million.
The fiscal year 1996 budget projects a $3.2 million fiscal year-end
unappropriated surplus.
Pennsylvania's general obligation debt is rated "AA-" by S&P and Fitch and
"A1" by Moody's.
PENNSYLVANIA TAXES. Interest derived by the Pennsylvania Fund from obligations
which are statutorily free from taxation in Pennsylvania ("Exempt
Obligations") are not taxable on pass through to shareholders for purposes of
the Pennsylvania personal income tax. The term "Exempt Obligations" includes
(i) those obligations issued by the Commonwealth of Pennsylvania and its
political subdivisions, agencies and instrumentalities, the interest from
which is statutorily free from state taxation in the Commonwealth of
Pennsylvania, and (ii) certain qualifying obligations of U.S. territories and
possessions, or U.S. Government obligations. Distributions attributable to
most other sources, including capital gains, will not be exempt from
Pennsylvania personal income tax.
Corporate shareholders that are subject to the Pennsylvania corporate net
income tax will not be subject to corporate net income tax on distributions of
interest made by the Pennsylvania Fund, provided such distributions are
attributable to Exempt Obligations. Distributions of capital gain attributable
to Exempt Obligations are subject to the Pennsylvania corporate net income
tax. An investment in the Pennsylvania Fund is also exempt from the
Pennsylvania Gross Premiums tax.
Shares of the Pennsylvania Fund which are held by individual shareholders who
are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the obligations
held by the Pennsylvania Portfolio consist of Exempt Obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal
property taxes.
For individual shareholders who are residents of the City of Philadelphia,
distributions of interest derived from Exempt Obligations will not be taxable
for purposes of the Philadelphia School District Investment Net Income Tax
("Philadelphia School District Tax"), provided that the Pennsylvania Portfolio
reports to its investors the percentage of Exempt Obligations held by it for
the year. The Pennsylvania Portfolio will report such percentage to its
investors.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly
from fiscal 1984 through fiscal 1990, the rate of this expansion slowed during
fiscal years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Although the Puerto Rico unemployment rate has declined
substantially since 1985, the seasonally adjusted unemployment rate for June,
1995 was approximately 13.9%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, could lead to the loss of Puerto
Rico's lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance
on nonrecurring revenues and economic weakness led S&P to change its outlook
from stable to negative.
<PAGE>
EV TRADITIONAL
MUNICIPAL
FUNDS
PROSPECTUS
DECEMBER 1, 1995
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND
EV TRADITIONAL NEW JERSEY MUNICIPALS FUND
EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 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
[LOGO]
EATON VANCE
===============
MUTUAL FUNDS
T-C12/1P
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
December 1, 1995
EV CLASSIC MUNICIPAL FUNDS
EV CLASSIC ARIZONA MUNICIPALS FUND EV CLASSIC MINNESOTA MUNICIPALS FUND
EV CLASSIC COLORADO MUNICIPALS FUND EV CLASSIC NEW JERSEY MUNICIPALS FUND
EV CLASSIC CONNECTICUT MUNICIPALS FUND EV CLASSIC PENNSYLVANIA MUNICIPALS FUND
EV CLASSIC MICHIGAN MUNICIPALS FUND EV CLASSIC TEXAS 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 OF CONTENTS
Page
PART I
Additional Information about Investment Policies .......................... 1
Investment Restrictions ................................................... 7
Trustees and Officers ..................................................... 8
Investment Adviser and Administrator ...................................... 10
Custodian ................................................................. 12
Service for Withdrawal .................................................... 12
Determination of Net Asset Value .......................................... 13
Investment Performance .................................................... 13
Taxes ..................................................................... 15
Principal Underwriter ..................................................... 17
Distribution Plan ......................................................... 17
Portfolio Security Transactions ........................................... 19
Other Information ......................................................... 20
Independent Certified Public Accountants .................................. 22
Financial Statements ...................................................... 22
Appendix .................................................................. 23
PART II
EV Classic Arizona Municipals Fund ....................................... a-1
EV Classic Colorado Municipals Fund ...................................... b-1
EV Classic Connecticut Municipals Fund ................................... c-1
EV Classic Michigan Municipals Fund ...................................... d-1
EV Classic Minnesota Municipals Fund ..................................... e-1
EV Classic New Jersey Municipals Fund .................................... f-1
EV Classic Pennsylvania Municipals Fund .................................. g-1
EV Classic Texas Municipals Fund ......................................... h-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED DECEMBER 1, 1995, 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 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 not have original
issue discount or (ii) in the case of an obligation that does have original
issue discount, the sum of the issue price and any original issue discount
that accrued before the obligation was purchased, subject to a de minimus
exclusion.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to
fund a wide range of public projects including the construction or improvement
of schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water, sewer and solid waste disposal systems;
highways, bridges and tunnels; port, airport and parking facilities;
transportation systems; housing facilities, colleges and universities and
hospitals. Although the principal security behind these bonds varies widely,
many provide additional security in the form of a debt service reserve fund
whose monies may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without legal obligation)
to make up deficiencies in the debt service reserve fund. Lease rental revenue
bonds issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds, 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 a particular State, 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.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state and local
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject
to a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt
service payments. Moreover, since a portion of housing, medical care and other
services may be financed by an initial deposit, it is important that the
facility maintain adequate financial reserves to secure estimated actuarial
liabilities. The ability of management to accurately forecast inflationary
cost pressures is an important factor in this process. The facilities may also
be affected adversely by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health
care or conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five
years. The North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The June, 1995 unemployment rate
was 13.9%.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the federal government. Most federal taxes,
except those such as social security taxes that are imposed by mutual consent,
are not levied in Puerto Rico. However, in conjunction with the 1993 U.S.
budget plan, Section 936 of the Internal Revenue Code was amended and provided
for two alternative limitations to the Section 936 credit. The first option
will limit the credit against such income to 40% of the credit allowable under
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option is a wage and depreciation based credit. The
reduction of the tax benefits to those U.S. companies with operations in
Puerto Rico may lead to slower growth in the future. There can be no assurance
that these modifications will not lead to a weakened economy, a lower rating
on Puerto Rico's debt or lower prices for Puerto Rican bonds that may be held
by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. Puerto Ricans voted to
retain Commonwealth status, leaving intact the current relationship with the
federal government. There can be no assurance that the statehood issue will
not be brought to a vote in the future. A successful statehood vote in Puerto
Rico would then require ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas was hit by a hurricane and sustained extensive damage. The
longer term impact on the tourism industry is not yet known. There can be no
assurances that the market for USVI bonds will not be affected.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experience a budget
deficit in 1989 due to wage settlements with the unionized government
employees. A deficit was also experienced in 1990 due to Hurricane Hugo. The
USVI recorded a small surplus in fiscal year 1991. At the end of fiscal 1992,
the last year for which results are available, the USVI had an unreserved
General Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam
is expected to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. The Naval Air Station, one of several
U.S. military facilities on the island, has been slated for closure by the
Defense Base Closure and Realignment Committee; however, the administration
plans to use these facilities to expand the island's commercial airport. Guam
is also heavily reliant on tourists, particularly the Japanese. For 1994, the
financial position of Guam was weakened as it incurred an unaudited General
Fund operating deficit. The administration has taken steps to improve its
financial position; however, there are no guarantees that an improvement will
be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which
is issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to
these arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. Such arrangements are, therefore, subject to the risk
that the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by the Portfolio. In the event the Portfolio acquires an unrated municipal
lease obligation, the Investment Adviser will be responsible for determining
the credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue
and compound over the period until maturity at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be
insured as to their scheduled payment of principal and interest under either
(i) an insurance policy obtained by the issuer or underwriter of the
obligation at the time of its original issuance or (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value. In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in the lowest investment grade, below investment grade and
comparable unrated obligations through active portfolio management, credit
analysis and attention to current developments and trends in the economy and
the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of
a market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the
same time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of municipal
obligations or changes in the investment objectives of investors. Such trading
may be expected to increase the portfolio turnover rate, which may increase
capital gains and the expenses incurred in connection with such trading. The
Portfolio anticipates that its annual portfolio turnover rate will generally
not exceed 100% (excluding turnover of securities having a maturity of one
year or less).
WHEN ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-
issued" basis, that is, delivery and payment for the securities normally
taking place within a specified number of days after the date of the
Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in
connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts generally require the issuer to sell and the Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future.
The Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Portfolio
enters into the purchase commitment. The Portfolio's custodian will segregate
cash or high grade liquid debt securities in a separate account of the
Portfolio in an amount at least equal to the when-issued commitments. If the
value of the securities placed in the separate account declines, additional
cash or high grade liquid debt securities will be placed in the account on a
daily basis so that the value of the account will at least equal the amount of
the Portfolio's when-issued commitments. When the Portfolio commits to
purchase a security on a when-issued basis it records the transaction and
reflects the value of the security in determining its net asset value.
Securities purchased on a when-issued basis and the securities held by the
Portfolio are subject to changes in value based upon the perception of the
creditworthiness of the issuer and changes in the level of interest rates
(i.e. appreciation when interest rates decline and depreciation when interest
rates rise). Therefore, to the extent that the Portfolio remains substantially
fully invested at the same time that it has purchased securities on a when-
issued basis, there will be greater fluctuations in the Portfolio's net asset
value than if it solely set aside cash to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Variable rate obligations normally provide that the
holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, a bank may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder.
The Portfolio would anticipate using these obligations as cash equivalents
pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Interest income generated by certain bonds
having demand features may not qualify as tax-exempt interest. Longer term
fixed-rate bonds may give the holder a right to request redemption at certain
times (often annually after the lapse of an intermediate term). These bonds
are more defensive than conventional long term bonds (protecting to some
degree against a rise in interest rates) while providing greater opportunity
than comparable intermediate term bonds, because the Portfolio may retain the
bond if interest rates decline. By acquiring these kinds of obligations the
Portfolio obtains the contractual right to require the issuer of the security
or some other person (other than a broker or dealer) to purchase the security
at an agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
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
Certain 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. The Fund's fundamental investment
restrictions are set forth under "Investment Restrictions" in Part II of this
Statement of Additional Information.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the 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 also adopted nonfundamental investment
policies which may be changed by the Trustees of the Trust with respect to the
Fund without approval by the Fund's shareholders or by the Trustees of the
Portfolio with respect to the Portfolio without the approval of the Fund or
the Portfolio's other investors. The Fund's nonfundamental policies are set
forth under "Investment Restrictions" in Part II of this Statement of
Additional Information.
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.
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 BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Woodubury
was elected Assistant Secretary on Jun 19, 1995.
For additional officers of the Portfolio (if any), 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 $16 billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable investment-
grade and high-yield securities, tax-exempt investment-grade and high-yield
securities, and U.S. Government securities. The equity division covers stocks
ranging from blue chip to emerging growth companies.
Eaton Vance offers single-state tax-free portfolios in more states than
any other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual
fund portfolios. Assets managed by the municipal investment group are
currently over $9.1 billion. The following persons manage one or more of the
Eaton Vance tax-free portfolios. For the identity of the Portfolio's portfolio
manager, see the Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II 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. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management,
Inc. and MinVen Inc., which are engaged in the development of precious metal
properties. EVC also owns 21% of the Class A shares of Lloyd George Management
(B.V.I.) Limited, a registered investment adviser. EVC, BMR, Eaton Vance and
EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts, acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund, and computes the daily net asset value
of interests in the Portfolio and the net asset value of shares of the Fund.
In such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT
charges fees which are competitive within the industry. A portion of the fee
relates to custody, bookkeeping and valuation services and is based upon a
percentage of Fund and Portfolio net assets and a portion of the fee relates
to activity charges, primarily the number of portfolio transactions. These
fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day, U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. Landon T. Clay, a Director of EVC and an
officer, Trustee or Director of other members of the Eaton Vance organization,
owns approximately 13% of the stock of IBT. Management believes that such
ownership does not create an affiliated person relationship between the Fund
or the Portfolio and IBT under the Investment Company Act of 1940. For the
custody fees that the Portfolio and the Fund paid to IBT, see "Fees and
Expenses" in the Fund's Part II 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 plan accounts will be credited at net asset value
as of the record date for each distribution. Continued withdrawals in excess
of current income will eventually use up principal, particularly in a period
of declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) 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 service uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities, various relationships between securities, and yield to
maturity in determining value. Taxable obligations for which price quotations
are readily available normally will be valued at the mean between the latest
available bid and asked prices. Open futures positions on debt securities are
valued at the most recent settlement prices, unless such price does not
reflect the fair value of the contract, in which case the positions will be
valued by or at the direction of the Trustees of the Portfolio. Other assets
are valued at fair value using methods determined in good faith by the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, 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 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 July 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 .20%, 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 .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 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 is organized as a Massachusetts business trust. As permitted by
Massachusetts law, there will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees of the Trust holding office have been elected by
shareholders. In such an event the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes as do not have a materially adverse effect on the financial
interests of shareholders or if they deem it necessary to conform it to
applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any
emergency as determined by the Commission which makes it impracticable for the
Portfolio to dispose of its securities or value its assets, or during any
other period permitted by order of the Commission for the protection of
investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche, LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual
Report accompanies this Statement of Additional Information.
Registrant incorporates by reference the audited financial information for
the Fund's and the Portfolio's for the fiscal year ended July 31, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950135-95-001994).
<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.
- -------------------
+ 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>
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated PRIME-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus
(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
S&P's commercial paper ratings are a current assessments of the likelihood of
timely payment of debts considered short-term in the relevant market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus
(+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse change could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC ARIZONA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Arizona State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Arizona Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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 it of initial or maintenance margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value) is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of its
investment adviser, or the Fund if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
are not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate, (including limited partnership
interests, 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its principal underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may engage in options, futures or forward
transactions if more than 5% of its net assets, as measured by the aggregate
of the premiums paid by the Fund or the Portfolio, would be so invested. The
Fund and Portfolio may purchase put options on municipal obligations only if,
after such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Arizona considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Arizona 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
Arizona issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The ability of Arizona and its political subdivisions to respond to the
ever-increasing burdens placed upon them by the growth of the 1980's has been
limited, in part, by Constitutional and legislative restrictions on property
tax increases and limitations on annual expenditure increases. Subject to
certain exceptions, the maximum amount of property taxes levied by any Arizona
county, city, town or community college district for their operations and
maintenance expenditures cannot exceed the amount levied in a preceding year
by more than two percent. Certain taxes are specifically exempt from this
limit, including taxes levied for debt service payments. Annual property tax
levies for the payment of general obligation bonded indebtedness are unlimited
as to rate or amount. However, there are Constitutional limitations on the
aggregate amount of general obligation bonded indebtedness an Arizona
municipality may incur, and these limitations could impede a municipality's
ability to respond to the needs of a fast-growing population for additional
public facilities and services.
Arizona State government general fund revenue growth in fiscal year 1994
exceeded projections, increasing 10.7% overall. The 10.8% increase in sales
tax revenue and the 9.3% increase in income tax revenue reflects the increased
economic growth in the State. With revenue growth outpacing an 8.8% increase
in expenditures, the State general fund ended fiscal year 1994 with a total
fund balance of $420.2 million. Fiscal year 1995 is expected to close with a
general fund balance of $115 million, and a budget stabilization ("rainy day"
fund) balance of approximately $203 million, with the two combined equal to
7.3% of total general fund expenditures.
The 1995 legislature enacted a $200 million income tax reduction package
and has committed to enact a $200 million property tax reduction package in
1997. In 1992, Arizona voters passed a measure that requires a two-thirds vote
of the legislature to increase State revenue. Accordingly, it will be more
difficult to reverse the current and planned tax reductions, which may
adversely affect State fund balances and fiscal conditions.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $144,521,015. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$629,148 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $505,544 (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 $268,894 (equivalent to 0.39%
(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 July 31, 1995 and for the period from the start of business,
December 13, 1993, to the fiscal year ended July 31, 1994, $18,453 and
$16,438, 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 July 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $21,876 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $22,746. Such payments reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $600 were imposed on early redeeming shareholders
and paid to the Principal Underwriter to reduce Uncovered Distribution
Charges. As at July 31, 1995, the outstanding Uncovered Distribution Charges
of the Principal Underwriter calculated under the Plan amounted to
approximately $421,000 (which amount was equivalent to 17.1% of the Fund's net
assets on such date). During the fiscal year ended July 31, 1995, the Fund
paid service fee payments under the Plan aggregating $6,090, of which $5,854
was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $87.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $4,972 and the
Portfolio paid IBT $65,302.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $1,692(2) $135,000(4)
Samuel L. Hayes, III ...... 0 1,736(3) 150,000(5)
Norton H. Reamer .......... 0 1,752 135,000
John L. Thorndike ......... 0 1,841 140,000
Jack L. Treynor ........... 0 1,784 140,000
- ----------
(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, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund from July 25, 1991 through July 31, 1995 and for the one year period
ended July 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 13, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
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 INVEST- VALUE OF INVEST- TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE DE- MENT AFTER DE- DEDUCTING DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1>--------------------------- -------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 7/25/91 $1,000 $ 1,341.37 $ 1,341.37 34.14% 7.58% 34.14% 7.58%
1 Year
Ended
7/31/95<F2> 7/31/94 $1,000 $ 1,064.39 $ 1,054.39 6.44% 6.44% 5.44% 5.44%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
<F1> 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 July 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 6.91%,
assuming a combined federal and State tax rate of 34.59%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 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 42.5%
Aa or AA 20.2
A 22.0
Baa or BBB 11.1
Ba or BB 1.7
B --
Below B --
Not rated 2.5
-----
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
Arizona tax brackets applicable for 1995: 17.98% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 31.74% for single
filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 34.59% for single filers with taxable income from $56,551
to $117,950 and joint filers from $94,251 to $143,600; 39.58% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 42.98% 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 Arizona 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 bracket than indicated above. The
brackets are also based on the highest Arizona tax rate within each bracket.
As a result, some taxpayers may have lower tax brackets within 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
17.98% 31.74% 34.59% 39.58% 42.98%
------ ------ ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.10 7.33 7.64 8.28 8.77
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.67 2.22 2.13 1.96 1.85
</TABLE>
The Tax Free Yield Advantage
(39.58% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
5.00% Tax free investment
8.28% 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: (1,286.35) NONE
After-tax income: $1,963.65 $5,000.00
The 1995 combined tax bracket takes into account federal and Arizona State
income taxes. Assuming the deductibility of State taxes on the federal return,
the bracket is 39.58% 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL and Southwest Securities, Dallas, TX were the record owners
of approximately 33.5% and 20.0% 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 such date, Sherely F. Randall, Trustee, Sherely F. Randall Liv
Trust U/A dtd 8/9/94, Green Valley, AZ owned approximately 9.1% of the
outstanding shares of the Fund. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Arizona Tax Free Fund to EV Classic Arizona
Municipals Fund on December 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 Arizona 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 ARIZONA STATE
SINGLE FEDERAL AND TAX EXEMPT YIELD OF:
RETURN JOINT RETURN ARIZONA 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- STATE 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 17.98% 4.88% 5.49% 6.10% 6.71% 7.31% 7.92% 8.53%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 31.74 5.86 6.59 7.33 8.06 8.79 9.52 10.26
$ 56,551 - $117,950 $ 94,251 - $143,600 34.59 6.12 6.88 7.64 8.41 9.17 9.94 10.70
$117,951 - $256,500 $144,601 - $256,500 39.58 6.62 7.45 8.28 9.10 9.93 10.76 11.59
Over $256,500 Over $256,500 42.98 7.02 7.89 8.77 9.65 10.52 11.40 12.28
<FN>
<F1> Net amount subject to federal and Arizona personal income tax after deductions and exemptions.
<F2> The combined federal and Arizona tax brackets are calculated using the highest Arizona 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 Arizona 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 Arizona 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 Arizona Municipals Fund
will achieve any specific tax exempt yield. While it is expected that a
substantial portion of the interest income distributed to Fund Shareholders
will be exempt from the regular federal income tax and Arizona 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 Arizona 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 COLORADO MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Colorado State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Colorado Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value) is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may engage in options, futures or forward
transactions if more than 5% of its net assets, as measured by the aggregate
of the premiums paid by the Fund or the Portfolio, would be so invested. The
Fund and Portfolio may purchase put options on municipal obligations only if,
after such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Colorado considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Colorado 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
Colorado issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Large public works projects, a pickup in the housing sector and growth in
the trade and services industries led to moderate employment gains for the
State during the early 1990's. Certain areas of manufacturing, however, have
been adversely impacted by the prolonged U.S. downturn and by relatively heavy
reliance on defense contracts and military payroll.
The major revenue sources of the State are the individual income tax and
the general sales and use tax. Because of limitations contained in the State
constitution, the State of Colorado issues no general obligation bonds.
Several agencies and instrumentalities of State government, however, are
authorized by statute to issue bonds secured by revenues from specific
projects and activities or to enter into lease-purchase financings which are
subject to annual appropriation. Additionally, the State is authorized to
issue short-term revenue anticipation notes. To the extent the Portfolio holds
debt of local units of government whose revenues may rely in part on
distributions from the State, the fiscal health of the State will have an
indirect affect on the Portfolio. The State is required to have a balanced
budget each fiscal year. Therefore, in the event of a funding gap, the State
must cut expenditures and/or raise revenues. The latter is difficult,
especially since the passage of the TABOR Amendment (see below). Strong growth
in income tax and sales tax collections recently contributed to larger
increases in the unreserved fund balance than had been budgeted. In fiscal
year 1993-94, the State had revenue collections which exceeded expenditures by
$38 million. In fiscal year 1994-95, revenues exceeded expenditures by $94
million. The State will make a $74 million contribution to an emergency
reserve, leaving the general fund reserve at $276 million, or roughly 7.6% of
total annual appropriations. Such emergency reserve transfers are not foreseen
to be required in the next several years. Revenues for the 1995-96 fiscal year
are budgeted to increase 4% while expenditures will increase 6%.
There are approximately 1,800 units of local government in Colorado,
including counties, statutory cities and towns, home-rule cities and counties,
school districts and a variety of water, sewer and other special districts,
all with various constitutional and statutory authority to levy taxes and
incur indebtedness. The major sources of revenue for payment of indebtedness
are the ad valorem property tax, which presently is imposed and collected
solely at the local level, although the State is also authorized to levy the
tax, sales and use taxes, and revenue from special projects. Residential real
property is presently assessed at 10.36% of its actual value. All other
property is assessed at 29% of its actual value except producing mines and oil
and gas properties. Oil and gas properties are assessed at 87.5%.
A 1992 amendment to the State Constitution (the "TABOR Amendment")
restricts growth of State and local government spending to the rate of
inflation plus growth (as measured by population, school enrollment, or
construction depending on the government entity); and requires voter approval
of all new taxes or tax increases and the issuance of most types of debt.
Though the TABOR Amendment is not expected to have an immediate effect on the
credit quality of state and local governments, it will likely reduce the
financial flexibility of all levels of government in Colorado over time. In
particular, local governments dependent on taxes on residential property are
being squeezed between the TABOR Amendment requirements of voter approval for
increased mill levies and an earlier State Constitutional amendment which has
had the effect of lowering the assessment rate on residential property from
21% to 10.36% over the past 8 years. Younger or rapidly growing municipalities
with large infrastructure requirements may have particular difficulty finding
the revenues needed to finance their growth.
FEES AND EXPENSES
INVESTMENT ADVISER
As at July 31, 1995, the Portfolio had net assets of $46,077,166. For the
fiscal year ended July 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $128,496 (equivalent to 0.28% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$69,064. For the ten months ended July 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $67,224 (equivalent to 0.23%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of the full
amount of its advisory fee and BMR was allocated a portion of the expenses
related to the operation of the Portfolio in the amount of $31,504. 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 $15,122 (equivalent to 0.16% (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 $12,114. 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 July 31, 1995 and for the period from the start of business,
December 10, 1993, to the fiscal year ended July 31, 1994, $17,169 and
$14,596, 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 July 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $16,399 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $17,028. Such payments reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $200 were imposed on early redeeming shareholders
and paid to the Principal Underwriter to reduce Uncovered Distribution
Charges. As at July 31, 1995, the outstanding Uncovered Distribution Charges
of the Principal Underwriter calculated under the Plan amounted to
approximately $286,000 (which amount was equivalent to 14.5% of the Fund's net
assets on such date). During the fiscal year ended July 31, 1995, the Fund
paid service fee payments under the Plan aggregating $4,594, of which $4,346
was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $125 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $4,950 and the
Portfolio paid IBT $16,604.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $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, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund from August 25, 1992 through July 31, 1995 and for the one year
period ended July 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.
<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 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 8/25/92 $1,000 $1,174.45 $1,174.45 17.45% 5.64% 17.45% 5.64%
1 Year
Ended
7/31/95<F2> 7/31/94 $1,000 $1,058.88 $1,048.88 5.89% 5.89% 4.89% 4.89%
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 July 31, 1995, the yield of the Fund was
4.83%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.83% would be 7.37%,
assuming a combined federal and State tax rate of 34.45%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, respectively, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.80%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.91%. 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 48.2%
Aa or AA 17.6
A 16.4
Baa or BBB 16.8
Ba or BB --
B --
Below B --
Not rated 1.0
-----
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 federal and Colorado
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
Colorado 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. 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 or predict any future rate of
return for the Fund.
<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>
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 Colorado
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 (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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Donaldson Lufkin Jenrette Securities Corporation
Inc., Jersey City, NJ and Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL were the record owners of approximately 12.3% and 8.7% of the
outstanding shares, which were held on behalf of their customers who are the
beneficial owners of such shares, and as to which they had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
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 Colorado Tax Free Fund to EV Classic Colorado
Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and Colorado 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 COLORADO STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------- ------------ CO 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 Colorado personal income tax after deductions and exemptions.
<F2> The Colorado income tax rate is 5%. The combined tax rates assume that Colorado 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 Colorado State income taxes)
for taxpayers with adjusted gross income in excess $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 Colorado 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 Colorado 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 Colorado 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 CONNECTICUT 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 Connecticut Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may engage in options, futures or forward
transactions if more than 5% of its net assets, as measured by the aggregate
of the premiums paid by the Fund or the Portfolio, would be so invested. The
Fund and Portfolio may purchase put options on municipal obligations only if,
after such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Connecticut considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Connecticut 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
Connecticut issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Although the manufacturing sector has traditionally been of prime economic
importance to Connecticut, the non-manufacturing sector of employment
(primarily aircraft engines, helicopters and submarines) now dominate the
State's economy. Approximately 82% of the State's non-agricultural employment
is in the non-manufacturing sector, with 30% of the total in the service
sector, 22% in the wholesale and retail trade sector, and 14% in the
government sector. Defense-related business plays an important role in the
Connecticut economy, and defense awards to Connecticut have traditionally been
among the highest in the nation on a per capita basis. However, in recent
years the federal government has reduced defense-related spending which has
had an adverse impact on the Connecticut economy.
As of June 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 5.4%, compared to 5.6% for the nation. Between June 1994
and June 1995, the State lost 1,700 non-farm jobs, with gains in the services
and construction sectors being offset by losses in the manufacturing (durable
goods), finance, insurance and real estate sectors of the economy. The State's
economy is beginning a slow recovery, constrained by military spending cuts
and cost containment pressures in the insurance and biomedical industries. The
full economic impact of continued corporate downsizing in the defense and
insurance industries may not be fully realized.
The State derives over 70% of its revenues from taxes imposed by the
State. The two major taxes have been the sales and use tax and the corporation
business tax, each of which is sensitive to changes in the level of economic
activity in the State, but the Connecticut personal income tax on individuals,
trusts, and estates enacted in 1991 is expected to supersede them in
importance. In order to promote economic stability and provide a positive
business climate, several tax changes were adopted during the 1993 legislative
session. Among the most significant changes were the changes to the
Corporation Business Tax -- a 4 year gradual rate reduction to 11.25%
beginning January 1, 1995; 11% beginning January 1, 1996; 10.5% beginning
January 1, 1997 and 10% beginning January 1, 1998.
During fiscal 1991-92, the State issued $965.7 million of Economic
Recovery Notes, of which $455.6 million remained outstanding as of March,
1995. The State ended the 1992-93 fiscal year with a $113.5 million General
Fund operating surplus and a $19.7 million General Fund surplus for the 1993-
94 fiscal year. The estimated surplus at June 1995 for the General Fund is
$74.5 million, and the estimated surplus for the Transportation Fund is $57.9
million.
The State, its officers and employees are defendants in numerous lawsuits.
According to the State Attorney General's Office, an adverse decision in any
of the cases summarized herein could materially affect the State's financial
position: (i) an action to enforce the spending cap provision of the State's
constitution by seeking to require that the General Assembly define certain
terms used therein and to enjoin certain increases in "general budget
expenditures" until this is done; (ii) litigation on behalf of black and
hispanic school children in the City of Hartford seeking "integrated
education" within the greater Hartford metropolitan area; (iii) litigation
involving claims by Indian tribes to less than 1/10 of 1% of the State's land
area; (iv) litigation challenging the State's method of financing elementary
and secondary public schools on the grounds that it denies equal access to
education; (v) an action in which two retarded persons seek placement outside
a State hospital, new programs, and damages on behalf of themselves and all
mentally retarded patients at the hospital; (vi) litigation involving claims
for refunds of taxes by several cable television companies; (vii) an action on
behalf of all persons with retardation or traumatic brain injury, claiming
that their constitutional rights are violated by placement in State hospitals
alleged not to provide adequate treatment and training, and seeking placement
in community residential settings with appropriate support services; (viii) an
action by the Connecticut Hospital Association and 33 hospitals seeking to
require the State to reimburse hospitals for in-patient medical services on a
more favorable basis; (ix) a class action by the Connecticut Criminal Defense
Lawyers Association claiming a campaign of illegal surveillance activity and
seeking damages and injunctive relief; (x) two actions for monetary damages
brought by a former patient at a State mental hospital stemming from an
attempted suicide that left her brain-damaged; (xi) an action challenging the
validity of the State's imposition of surcharges on hospital charges to
finance certain uncompensated care costs incurred by hospitals; and (xii) an
action challenging the validity of the State's imposition of gross earnings
taxes on hospital revenues to finance certain uncompensated care costs.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $195,275,789. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$835,605 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $635,227 (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 $331,388 (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 July 31, 1995 and for the period from the start of business,
December 9, 1993, to the fiscal year ended July 31, 1994, $22,099 and $18,157,
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 July 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $27,355 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $28,944. Such payments reduced Uncovered
Distribution Charges. During such period, no contingent deferred sales charges
were paid to the Principal Underwriter. As at July 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Plan amounted to approximately $346,000 (which amount was equivalent to
7.5% of the Fund's net assets on such date). During the fiscal year ended July
31, 1995, the Fund paid service fee payments under the Plan aggregating
$7,696, of which $7,294 was paid to Authorized Firms and the balance of which
was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $95 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $3,449 and the
Portfolio paid IBT $48,135.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 funds in the Eaton Vance fund
complex:<F1>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $2,096<F2> $135,000<F4>
Samuel L. Hayes, III ...... 0 2,123<F3> 150,000<F5>
Norton H. Reamer .......... 0 2,133 135,000
John L. Thorndike ......... 0 2,227 140,000
Jack L. Treynor ........... 0 2,196 140,000
- ----------
<F1> The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
<F2> Includes $525 of deferred compensation.
<F3> Includes $682 of deferred compensation.
<F4> Includes $35,000 of deferred compensation.
<F5> 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 May 1, 1992 through July 31, 1995 and for the one year period ended
July 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>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST VALUE OF INVEST TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE DE- MENT AFTER DE- DEDUCTING DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1>--------------------------- -------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 5/1/92 $1,000 $1,196.15 $1,196.15 19.62% 5.67% 19.62% 5.67%
1 Year
Ended
7/31/95<F2> 7/31/94 $1,000 $1,044.87 $1,034.95 4.49% 4.49% 3.49% 3.49%
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 July 31, 1995, the yield of the Fund was
4.57%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.57% would be 6.94%,
assuming a combined federal and State tax rate of 34.11%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 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%. 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 33.8%
Aa or AA 27.2
A 22.1
Baa or BBB 14.9
Ba or BB --
B --
Below B --
Not rated 2.0
-----
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
Connecticut tax brackets applicable for 1995: 18.25% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 31.24% for single
filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 34.11% for single filers with taxable income from $56,551
to $117,950 and joint filers from $94,251 to $143,600; 38.88% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 42.32% 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 highest effective Connecticut State income tax rate is 4.5%. Tax
credits reduce the effective Connecticut tax rate for single filers with
taxable income up to $52,500 and joint filers up to $100,500. The combined
brackets use the highest effective Connecticut tax rate for single or joint
filers within each combined bracket. Taxpayers with taxable income within
these brackets may have a lower combined tax rate than indicated above. 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. 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
18.25% 31.24% 34.11% 38.88% 42.32%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.12 7.27 7.59 8.18 8.67
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.66 2.23 2.14 1.99 1.87
</TABLE>
The Tax Free Yield Advantage
(38.88% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.99% After-tax yield
5.00% Tax free investment
8.18% 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: (1,263.60) NONE
After-tax
income: $1,986.40 $5,000.00
The 1995 combined tax bracket takes into account federal and Connecticut
State income taxes and uses the highest effective Connecticut tax rate for
single or joint filers (reduced by available tax credits). Assuming the
deductibility of State taxes on the federal return, the bracket is 38.88% 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 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, People's Securities, Inc., Bridgeport, CT and Merrill Lynch,
Pierce, Fenner & Smith, Inc., Jacksonville, FL were the record owners of
approximately 9.1%, and 8.1%, respectively, of the outstanding shares, which
were held on behalf of their customers who are the beneficial owners of such
shares, and as to which they have voting power under certain limited
circumstances. In addition, as of such date, the following shareholder owned
beneficially and of record the percentage of outstanding shares of the Fund
indicated after the name: Raymond James & Associates, Inc., FAO Diane & Thom
Santa Barbara & Anne E. MacKinnel TT 12/23/92, Branford, CT (21.9%). To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on Janury 7, 1991. The Fund changed its
name from EV Classic Connecticut Tax Free Fund to EV Classic Connecticut
Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income tax
and Connecticut 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 CONNECTICUT STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN CT 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------ STATE 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 18.25% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 56,551 - $117,950 $ 94,251 - $143,600 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$117,951 - $256,500 $143,601 - $256,500 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $256,500 Over $256,500 42.32 6.93 7.80 8.67 9.54 10.40 11.27 12.14
<F1> Net amount subject to federal and Connecticut personal income tax after
deductions and exemptions.
<F2> The Connecticut personal income tax rate is 4.5%. Tax credits reduce the
effective Connecticut tax rate for single filers with taxable income up to
$52,500 and joint filers up to $100,500. The combined federal and
Connecticut tax brackets are calculated using the highest effective
Connecticut tax rate for single or joint filers (reduced by available tax
credits) within each bracket. 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 Connecticut 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 Connecticut 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 Connecticut 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 Connecticut 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 Connecticut 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 MICHIGAN MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Michigan State and City income and single
business taxes in the form of an investment exempt from Michigan intangibles
tax. The Fund currently seeks to achieve its investment objective by investing
its assets in the Michigan Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value) is held as collateral for such sales at any
one time. (The Fund and the Portfolio will make such sales only for the purpose
of deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933, or participate on a joint or a joint and
several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis are
not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate (including limited partnership interests,
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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures contracts on securities and on securities, economic and
other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its principal underwriter, as
principal; however, any such persons or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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, provided, however, that the Fund may invest without limitation in the
Portfolio or in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may purchase securities
of unseasoned issuers, including their predecessors, which have been in
operation for less than three years, if by reason thereof the value of its
aggregate investment in such class of securities will exceed 5% of its total
assets, provided that the issuers of securities rated by Moody's, S&P, Fitch or
any other nationally recognized rating service shall not be considered
"unseasoned"; provided, however, that the Fund may invest without limitation in
the Portfolio or in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may purchase call
options on securities. The Fund and Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its net
assets, as measured by the aggregate of the premiums paid for such options held
by it, would be so invested. Neither the Fund nor the Portfolio may invest in
warrants, valued at the lower of cost or market, exceeding 5% of the value of
its net assets. Included within that amount, but not to exceed 2% of the value
of its net assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund or the Portfolio in units
or attached to securities may be deemed to be without value. Neither the Fund
nor the Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Michigan considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Michigan 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
Michigan issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The State's economy is overly dependent on the manufacturing sector, more
specifically the auto industry. Manufacturing accounts for 23% of total
employment as compared to the national average of 17%. The dependency on
manufacturing makes the State economy overly susceptible to economic downturns.
For the first time since 1966, the unemployment rate was below the national
average. An improving economy and successful cost containment have enabled the
State to improve its financial position. For 1994, the Budget Stabilization Fund
was $779 million and is projected to reach $1.1 billion for 1995. The Governor
has proposed reducing individual and business income taxes. For 1996, revenues
are estimated to grow 4.7% while expenditures will grow by a similar rate.
In March, 1994, Michigan voters approved a change in the tax system. The
most significant provisions were an increase in the sales tax rate from 4% to
6%, a reduction in the income tax rate from 4.6% to 4.4% and the creation of a
statewide property tax. These changes are expected to provide sufficient
revenues to offset the elimination of property taxes for school district
operating purposes. There can be no assurance that school districts will receive
sufficient revenues to be able to service any limited tax bonds they may have
outstanding and which may be held by the Portfolio.
Under the State Constitution, the Legislature is prohibited from raising
taxes if doing so would cause total State revenues (except Federal aid) to
exceed 10% of State personal income. The only exceptions to this revenue limit
are a majority approval of a referendum question or a specific emergency
declared by a two-thirds vote of the Legislature. However, this limit does not
apply to taxes imposed for the payment of principal and interest on bonds of the
State, if the bonds are approved by voters and authorized by a vote of
two-thirds of the members of each House of the Legislature. Local units of
government and local authorities are authorized to issue bonds and other
evidences of indebtedness in a variety of situations without the approval of
electors, but the ability of the obligor to levy taxes for the payment of such
obligations is subject to the foregoing limitations unless the obligations were
authorized before December 23, 1978 or approved by the electors. The
Constitution prohibits the State from reducing the proportion of total State
spending paid to all local units of government, taken as a group, below that
proportion in effect in the 1978-79 fiscal year. The State may not mandate new
or increased levels of services to be provided by local units without making
appropriations to cover any increased costs.
Under the State Constitution, the total amount of general ad valorem taxes
imposed on taxable property in any year cannot exceed certain millage
limitations specified by the Constitution, statute or charter. The Constitution
prohibits local units of government from levying any tax not authorized by law
or charter, or from increasing the rate of an existing tax above the rate
authorized by law or charter. The Constitution also contains millage reduction
provisions. Under such provisions, should the value of taxable property
(exclusive of new construction and improvements) increase at a percentage
greater than the percentage increase in the Consumer Price Index, the maximum
authorized tax rate would be reduced by a factor which would result in the same
maximum potential tax revenues to the local taxing unit as if the valuation of
taxable property (less new construction and improvements) had grown only at the
Consumer Price Index rate instead of at the higher actual growth rate. Thus, if
taxable property values rise faster than consumer prices, the maximum authorized
tax rate would be increased at the Consumer Price Index rate. Conversely, if
taxable property values rise slower than consumer prices, tax rates may be
raised accordingly, but never higher than the rate authorized on December 23,
1978, without elector approval.
The ability of the State to pay the principal and interest on its general
obligation bonds may be affected by the limitations described above. Similarly,
the ability of local units to levy taxes to pay the principal of and interest on
their general obligations is subject to the constitutional, statutory and
charter limits described below.
FEES AND EXPENSES
INVESTMENT ADVISER
As at July 31, 1995, the Portfolio had net assets of $191,262,981. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$856,258 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $721,041 (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 $443,391 (equivalent to 0.42%
(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 July 31, 1995, and for the period from the start of business,
December 7, 1993, to the fiscal year ended July 31, 1994, $12,579 and $13,862,
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 July 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $40,804 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $41,523. Such payments reduced Uncovered Distribution
Charges. During such period, contingent deferred sales charges aggregating
approximately $50 were imposed on early redeeming shareholders and paid to the
Principal Underwriter to reduce Uncovered Distribution Charges. As at July 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $527,000 (which
amount was equivalent to 11.8% of the Fund's net assets on such date). During
the fiscal year ended July 31, 1995, the Fund paid service fee payments under
the Plan aggregating $11,008, of which $10,877 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $177.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $3,955 and the
Portfolio paid IBT $1,944.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
[S] [C] [C] [C]
Donald R. Dwight ........ $33 $2,198(2) $135,000(4)
Samuel L. Hayes, III .... 32 2,219(3) 150,000(5)
Norton H. Reamer ........ 31 2,229 135,000
John L. Thorndike ....... 32 2,325 140,000
Jack L. Treynor ......... 34 2,300 140,000
- ----------
(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,
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 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 at
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 April 19, 1991 through July 31, 1995 and for the one-year period ended
July 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>
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 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 4/19/91 $1,000 $1,306.77 $1,306.77 30.68% 6.44% 30.68% 6.44%
1 Year
Ended
7/31/95<F2> 7/31/94 $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 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 July 31, 1995, the yield of the Fund was
4.13%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.13% would be 6.51%, assuming a
combined federal and State tax rate of 36.54%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.57%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.66%. 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 48.6%
Aa or AA 9.9
A 25.1
Baa or BBB 13.3
sB --
Below B --
Not rated 3.1
------
Total 100.0%
The following compares the taxable equivalent 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 Michigan
income tax brackets applicable for 1995: 22.23% for single filers with taxable
income up to $23,350 and joint filers up to $39,000; 34.12% for single filers
with taxable income from $23,351 to $56,550 and joint filers from $39,001 to
$94,250; 36.87% for single filers with taxable income from $56,551 to $117,950
and joint filers from $94,251 to $143,600; 41.44% for single filers with taxable
income from $117,951 to $256,500 and joint filers from $143,601 to $256,500; and
44.73% 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 tax
brackets include a Michigan state income tax rate of 4.4%, a Michigan city
income tax rate of 1%, and a Michigan intangibles tax rate of 3.5%. The combined
brackets are not simply the sum of each of the taxes, as they assume that state
and city taxes are deducted on the federal income tax return, reducing the
effective combined tax brackets. Bank deposits are not subject to the Michigan
intangibles tax. The combined tax brackets used in calculating the after-tax
yields of the certificate of deposit were 19.25%, 31.60%, 34.45%, 39.20% and
42.62%, over the same 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
advisers for more information. These illustrations are not meant to imply or
predict any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
22.23% 34.12% 36.87% 41.44% 44.73%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent ............. 5.79 6.83 7.13 7.68 8.14
<CAPTION>
TAX BRACKET<F1>
19.25% 31.60% 34.45% 39.20% 42.62%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ----------
<FN>
<F1> CD interest is not subject to intangibles tax. Accordingly, the combined tax brackets applicable to after-tax yields are
19.25%, 31.60%, 34.45%, 39.20% and 42.62%.
</TABLE>
The Tax Free Yield Advantage
(41.44% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.98% After-tax yield
4.50% Tax free investment
7.68% 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: (1,346.80) NONE
After-tax
income: $1,903.20 $4,500.00
The 1995 combined tax bracket takes into account federal and Michigan State
income taxes and a city income tax rate of 1% as well as the Michigan
intangibles tax. Based on an investment yielding 4.5%, and assuming the
deductibility of State and City taxes on the federal return, the bracket is
41.44% 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 (Sources: The Wall
Street Journal and Eaton Vance Management). CD interest is not subject to
Michigan intangibles tax. Accordingly, the combined tax bracket applicable to
the after-tax CD yield is 39.20%. 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 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 76% of the outstanding shares, which were
held on behalf of its customers who are the beneficial owners of such shares,
and as to which it had voting power under certain limited circumstances. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Michigan Tax Free Fund to EV Classic Michigan Municipals
Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income tax,
Michigan State income tax, Michigan State intangibles tax and Michigan City
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 MICHIGAN STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------- ------------ MI 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 21.82% 5.12% 5.76% 6.40% 7.04% 7.67% 8.31% 8.95%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.78 6.04 6.80 7.55 8.31 9.06 9.82 10.57
$ 56,551 - $117,950 $ 94,251 - $143,600 36.54 6.30 7.09 7.88 8.67 9.45 10.24 11.03
$117,951 - $256,500 $143,601 - $256,500 41.14 6.80 7.64 8.49 9.34 10.19 11.04 11.89
Over $256,500 Over $256,500 44.45 7.20 8.10 9.00 9.90 10.80 11.70 12.60
<F1> Net amount subject to federal and Michigan personal income tax after deductions and exemptions.
<F2> The combined tax rates include a Michigan tax rate of 4.4%, Michigan City income tax rate of 1% (which may vary by city), and
a Michigan intangibles tax rate of 2.625%, and assume that Michigan 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 Michigan 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 Michigan 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 Michigan 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 Michigan 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 MINNESOTA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Minnesota State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Minnesota Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may purchase call options on securities. The Fund
and Portfolio may purchase put options on municipal obligations only if, after
such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no
longer in the best interests of the Fund and its shareholders, it will revoke
the commitment by terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Minnesota considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Minnesota 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
Minnesota issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The State's economic downturn has been less severe than that of the
nation, as evidenced by the State's employment growth in the early 1990s. The
State of Minnesota has no obligation to pay any bonds of its political or
governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the Portfolio are
expected to be obligations other than general obligations of the State of
Minnesota itself, there can be no assurance that the same factors that
adversely affect the economy of the State generally will not also affect
adversely the market value or marketability of such other obligations, or the
ability of the obligors to pay the principal of or interest on such
obligations.
At the local level, the property tax base has recovered after its growth
was slowed in many communities in the early 1990s by an overcapacity in
certain segments of the commercial real estate market. Local finances are also
affected by the amount of state aid that is made available. Further, various
of the issuers within the State of Minnesota, as well as the State of
Minnesota itself, whose securities may be purchased by the Portfolio, may now
or in the future be subject to lawsuits involving material amounts. It is
impossible to predict the outcome of these lawsuits. Any losses with respect
to these lawsuits may have an adverse impact on the ability of these issuers
to meet their obligations.
FEES AND EXPENSES
INVESTMENT ADVISER
As at July 31, 1995, the Portfolio had net assets of $82,967,696. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$310,489 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $228,154 (equivalent to 0.36% (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 $107,030 (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 July 31, 1995, and for the period from the start of business,
December 9, 1993, to the fiscal year ended July 31, 1994, $24,179 and $22,241,
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 July 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $35,560 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $36,299. Such payments reduced Uncovered
Distribution Charges. During such period, there were no contingent deferred
sales charges imposed on early redeeming shareholders. As at July 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $419,000 (which amount was
equivalent to 11.4% of the Fund's net assets on such date). During the fiscal
year ended July 31, 1995, the Fund accrued service fee payments under the Plan
aggregating $9,699, of which $9,447 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $105.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $3,348 and the
Portfolio paid IBT $20,399.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 ....... $25 $1,164(2) $135,000(4)
Samuel L. Hayes, III ... 24 1,222(3) 150,000(5)
Norton H. Reamer ....... 23 1,254 135,000
John L. Thorndike ...... 24 1,336 140,000
Jack L. Treynor ........ 26 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.
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 29, 1991 through July 31, 1995 and for the one-year period
ended July 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>
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 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 7/29/91 $1,000 $1,261.98 $1,261.98 26.20% 5.97% 26.20% 5.97%
1 Year
Ended
7/31/95<F2> 7/31/94 $1,000 $1,044.46 $1,034.53 4.45% 4.45% 3.45% 3.45%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<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 Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended July 31, 1995, the yield of the Fund was
4.60%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.60% would be 7.29%,
assuming a combined federal and State tax rate of 36.87%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.75%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.86%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 46.3%
Aa or AA 31.6
A 10.7
Baa or BBB 10.2
Ba or BB --
B --
Below B --
Not rated 1.2
-----
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 federal
and Minnesota 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;
34.12% for single filers with taxable income from $23,351 to $56,550 and joint
filers from $39,001 to $94,250; 36.87% for single filers with taxable income
from $56,551 to $117,950 and joint filers from $94,251 to $143,600; 41.44% for
single filers with taxable income from $117,951 to $256,500 and joint filers
from $143,601 to $256,500; and 44.73% 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 advisers for more information. These illustrations are not
meant to imply or predict any future rate of return for the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
21.80% 34.12% 36.87% 41.44% 44.73%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.39 7.59 7.92 8.54 9.05
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.54 2.14 2.05 1.90 1.80
The Tax Free Yield Advantage
(41.44% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.90% After-tax yield
5.00% Tax free investment
8.54% 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: (1,346.80) NONE
After-tax
income: $1,903.20 $5,000.00
The 1995 combined tax bracket takes into account federal and the highest
Minnesota State income taxes. Assuming the deductibility of State taxes on the
federal return, the bracket is 41.44% 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, the following shareholders owned of record the
percentages of outstanding shares indicated after their names: PaineWebber FBO
B.F. Nelson Inc., Minneapolis, MN 55414-2823 (25.35%); PaineWebber FBO Larry
Ross, Bloomington, MN 55438-1356 (24.94%); and PaineWebber FBO James Yackel,
Gertrude Boyum & Jean Pedersen co-Trustees U/A dtd. 12/31/76, Hammond, IN
46323-2028 (5.87%). 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 Minnesota Tax Free Fund to EV Classic
Minnesota Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and regular Minnesota State personal income tax laws and tax rates 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>
<TABLE>
<CAPTION>
A FEDERAL AND MINNESOTA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------------------- MN 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 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.12 6.07 6.83 7.59 8.35 9.11 9.87 10.63
$ 56,551 - $117,950 $ 94,251 - $143,600 36.87 6.34 7.13 7.92 8.71 9.50 10.30 11.09
$117,951 - $256,500 $143,601 - $256,500 41.44 6.83 7.68 8.54 9.39 10.25 11.10 11.95
Over $256,500 Over $256,500 44.73 7.24 8.14 9.05 9.95 10.86 11.76 12.67
<FN>
<F1> Net amount subject to federal and Minnesota personal income tax after deductions and exemptions.
<F2> The combined federal and Minnesota tax brackets are calculated using the highest Minnesota 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 Minnesota 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 Minnesota 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 Minnesota 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 Minnesota 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 Minnesota 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 Minnesota personal income tax, is treated as a
tax preference item which could subject the recipient to the federal and
Minnesota alternative minimum taxes. The illustrations assume that the federal
and Minnesota 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>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NEW JERSEY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New Jersey State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the New Jersey Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
As a matter of nonfundamental policy, neither the Fund nor the Portfolio
may 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; provided, however, that the Fund
may invest without limitation in the Portfolio or in another investment
company with substantially the same investment objective. Neither the Fund nor
the Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may purchase call options on securities. The Fund
and Portfolio may purchase put options on municipal obligations only if, after
such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain New Jersey considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New Jersey issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of New Jersey issuers. Neither the Trust nor the
Portfolio has independently verified this information.
New Jersey has a well diversified economy and high wealth levels. Per
capita income ranks as one of the highest in the nation. The State's economy
benefits from its proximity to New York and other major eastern seaboard
cities. New Jersey's economy, like most states, suffered during the recent
recession with unemployment increasing and surpassing the national average.
New Jersey's adjusted unemployment rate for May 1995 was 6.5% compared to 5.7%
nationally.
As of the date of this Statement of Additional Information, New Jersey's
general obligation debt was rated Aa1, AA+ and AA+ , by Moody's, S&P and Fitch,
respectively. As a result of New Jersey's fiscal weakness, evidenced by
declining fund balances, S&P placed the State's general obligation debt and
related agency and lease obligations on CreditWatch with negative implications
in June 1991. In July, 1991 S&P downgraded the State's general obligation debt
from AAA to AA+. As part of this action, numerous agency and lease obligation
debts were also downgraded accordingly. These downgrades did not affect state
university and college ratings. In August 1992, Moody's downgraded New Jersey to
Aa1 from Aaa due to the use of one-time revenue items, revenue shortfalls and
ongoing operating deficits. S&P affirmed their AA+ rating for the State, but
retained the negative outlook. On December 16, 1992, Fitch lowered their rating
on the State to AA+ from AAA. The rating action was due to the State's decision,
with the most recent bond issuance, to defer debt service in the immediate
future in order to provide for unmet capital needs, while increasing debt
service requirements in future years wnen additional resources may or may not be
available.
As part of the 1992-1993 budget, the Legislature cut approximately $1
billion in spending from the Governor's budget, including cutbacks in both the
State's homestead rebate and general assistance programs. To cover the
shortfall resulting from the cutbacks, the State employee pension fund was
revalued, allowing the State to reduce its contribution, and a surplus in the
school aid funds was applied to the General Fund. The State ended fiscal 1993
with an $855 million surplus, approximately half of which was used in the 1994
budget. 1994 had an appropriation for all funds of $15.7 billion, up 4.8% from
fiscal 1993 revised appropriations of $14.7 billion. Both years benefited from
$412 million in nonrecurring revenues from retroactive Federal Medicaid
payments. After the Legislature reduced the Governor's fiscal 1994 requests by
$182 million, about half the $855 million fiscal 1993 total surplus was used
for fiscal 1994, with a June 30, 1994 forecast of $416 million -- $110 million
allocated to the General Fund and over $305 million to rainy day and taxpayer
relief funds.
In 1994, New Jersey adopted a 5% personal income tax cut retroactive to
January 1, 1994. In 1995, New Jersey adopted a 10% personal income tax cut
retroactive to January 1, 1995. On June 26, 1995, the New Jersey State
Legislature passed an additional 15% reduction to take effect January 1, 1996.
State officials estimate the revenue loss resulting from these tax cuts at
over $1 billion for fiscal 1996. To accommodate the tax cut, the fiscal 1996
budget would rely on non-recurring revenues and the use of prior years'
surplus. Furthermore, a major focus of the spending reductions has been
employer contributions to retiree health care and pension systems which were
cut by over $863 million in fiscal 1995. There can be no assurance that the
tax cuts will not have an adverse impact on the State's finances and the
demand for municipal bonds in the State.
General obligation bonds of New Jersey are the primary method for New
Jersey financing of capital projects. These bonds are backed by the full faith
and credit of New Jersey. New Jersey tax revenues and certain other fees are
pledged to meet the principal and interest payments required to fully pay the
debt. No general obligation debt can be issued by New Jersey without prior
voter approval, except that, pursuant to a constitutional amendment, no voter
approval is required for any law authorizing the creation of a debt for the
purpose of refinancing all or a portion of the outstanding debt of New Jersey,
so long as such law requires that the refinancing provided debt service
savings. The New Jersey Constitution also provides that no voter approval is
required for debt issued for purposes of war, to repel invasion, to suppress
insurrection or to meet an emergency caused by disaster or act of God. Capital
construction can also be funded by appropriation of current revenues on a pay-
as-you-go basis. All appropriations for capital projects and all proposals for
State bond authorizations are subject to the review and recommendation of the
New Jersey Commission on Capital Budgeting and Planning.
Other State-related obligations include those created pursuant to the New
Jersey Building Authority Act, which has the power to construct facilities for
leasing to the State. The rental for such buildings is equal to the debt
service relating thereto plus payments in lieu of real estate taxes.
Legislation provides for future appropriations for State aid to local school
districts equal to debt service on a maximum principal amount of $280,000,000
of bonds issued by such local school districts for construction and renovation
of school facilities and for State aid to counties equal to debt service on up
to $80,000,000 of bonds issued by counties for construction of county college
facilities.
The authorizing legislation for various State entities provides for
specific budgetary procedures with respect to certain obligations issued by
such entities. Bonds issued pursuant to authorizing legislation of this type
are sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible State entities. Currently, there are two such entities available for
State appropriations to meet moral obligations. The New Jersey Housing and
Mortgage Finance Agency has not had a deficiency in a debt service reserve
which required New Jersey to appropriate funds. It is anticipated that the
agency's revenue will continue to be sufficient to cover debt service on its
bonds. The State provides the South Jersey Port Corporation with funds to
cover all debt service and property tax requirements, when earned revenues are
anticipated to be insufficient to cover these obligations. In the past,
anticipated revenues have, in some cases, been insufficient to cover debt
service and/or insufficient to cover all property tax requirements. These are
numerous other State-created entities with outstanding debt. This debt is
supported by revenues derived from or assets of the various projects financed
by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties
and municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may
be issued and requiring their repayment within three months of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance
of bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the
Local Finance Board. State law also authorizes State officials to supervise
fiscal administration in any municipality facing financial difficulties.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $411,038,422. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$1,944,340 (equivalent to 0.47% of the Portfolio's average daily net assets
for such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $1,609,137 (equivalent to 0.46% (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 $1,012,430
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended July 31, 1995 and for the period from the start of business,
December 3, 1993, to the fiscal year ended July 31, 1994, $22,188 and $22,653,
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 July 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $26,511 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $27,116. Such payments reduced Uncovered
Distribution Charges. During such period, no contingent deferred sales charges
were paid to the Principal Underwriter. As at July 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Plan amounted to approximately $295,000 (which amount was equivalent to
8.9% of the Fund's net assets on such date). During the fiscal year ended July
31, 1995, the Fund paid service fee payments under the Plan aggregating
$7,273, of which $7,040 was paid to Authorized Firms and the balance of which
was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $125.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $4,973 and the
Portfolio paid IBT $91,170.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 funds in the Eaton Vance fund
complex:<F1>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $3,594<F2> $135,000<F4>
Samuel L. Hayes, III ...... 0 3,569<F3> 150,000<F5>
Norton H. Reamer .......... 0 3,545 135,000
John L. Thorndike ......... 0 3,661 140,000
Jack L. Treynor ........... 0 3,742 140,000
- ----------
<F1> The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
<F2> Includes $889 of deferred compensation.
<F3> Includes $1,086 of deferred compensation.
<F4> Includes $35,000 of deferred compensation.
<F5> Includes $33,750 of deferred compensation.
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 January 8, 1991 through July 31, 1995 and for the one year
period ended July 31, 1995. The total return for the period prior to the
Fund's commencement of operations on December 3, 1993 reflects the Portfolio's
total return (or that of its predecessor) adjusted to reflect any applicable
Fund sales charge. Such performance has not been adjusted to reflect the
Fund's distribution fees and certain other expenses. If such an adjustment
were made, the performance would be lower.
<PAGE>
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE DE- MENT AFTER DE- DEDUCTING DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE<F1>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F1> -------------------------- -------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 1/8/91 $1,000 $1,352.10 $1,352.10 35.21% 6.84% 35.21% 6.84%
1 Year
Ended
7/31/95<F2> 7/31/94 $1,000 $1,052.00 $1,042.02 5.20% 5.20% 4.20% 4.20%
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 July 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 7.40%,
assuming a combined federal and State tax rate of 35.54%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.92%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.04%. 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 25.3%
Aa or AA 19.2
A 21.3
Baa or BBB 13.2
Ba or BB 7.0
B --
Below B --
Not rated 14.0
-----
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 federal
and New Jersey State income tax brackets applicable for 1995: 16.81% for
single filers with taxable income up to $23,350 and joint filers up to
$39,000; 32.33% for single filers with taxable income from $23,351 to $56,550
and joint filers from $39,001 to $94,250; 35.54% for single filers with
taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 40.21% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 43.57% 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 are calculated using the
highest New Jersey State rate applicable at the upper portion of the brackets
and assume that New Jersey taxes are deducted on the federal income tax
return. 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. See your tax adviser for additional information.
<TABLE>
<CAPTION>
TAX BRACKET
16.81% 32.33% 35.54% 40.21% 43.57%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.01 7.39 7.76 8.36 8.86
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.70 2.20 2.09 1.94 1.83
</TABLE>
The Tax Free Yield Advantage
(40.21% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.94% After-tax yield
5.00% Tax free investment
8.36% 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: (1,306.83) NONE
After-tax income: $1,943.17 $5,000.00
The 1995 combined tax bracket takes into account federal and New Jersey
State income taxes. Assuming the deductibility of state taxes on the federal
return, the bracket is 40.21% 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 44.81% 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 PaineWebber for the
benefit of Philip Corvelli, Fort Lee, NJ owned beneficially and of record
6.04% 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 New Jersey Tax Free Fund to EV Classic New
Jersey Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and New Jersey 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 NEW JERSEY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- -------------------- NJ 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 16.81% 4.81% 5.41% 6.01% 6.61% 7.21% 7.81% 8.41%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 32.33% 5.91 6.65 7.39 8.13 8.87 9.61 10.34
$ 56,551-$117,950 $ 94,251-$143,600 35.54% 6.21 6.98 7.76 8.53 9.31 10.08 10.86
$117,951-$256,500 $143,601-$256,500 40.21% 6.69 7.53 8.36 9.20 10.04 10.87 11.71
Over $256,500 Over $256,500 43.57% 7.09 7.98 8.86 9.75 10.63 11.52 12.41
<F1> Net amount subject to federal and New Jersey personal income tax after deductions and exemptions.
<F2> The combined tax rates for the tax brackets shown in the left hand columns are calculated using the highest New Jersey State
rate applicable at the upper portion of these brackets and assume the taxpayers deduct New Jersey State income taxes paid on
their federal income tax returns. An investor with taxable income below the highest dollar amount in such tax brackets may
have a lower combined tax rate than the combined rates shown. The taxable equivalent yields for such an investor may be lower
than indicated above. Investors who do not itemize deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield then 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 New Jersey 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 New Jersey Municipals
Fund will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and New Jersey personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for New Jersey 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 PENNSYLVANIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Pennsylvania State and local income taxes in
the form of an investment exempt from Pennsylvania personal property taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Pennsylvania Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value), is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933, or participate on a joint or a joint and
several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis is
not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures contracts on securities and on securities, economic and
other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its underwriter, as principal;
however, any such person or concerns may be employed as a broker upon customary
terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without limitation in the
Portfolio or in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may purchase securities
of unseasoned issuers, including their predecessors, which have been in
operation for less than three years, if by reason thereof the value of its
aggregate investment in such class of securities will exceed 5% of its total
assets, provided that the issuers of securities rated by Moody's, S&P, Fitch or
any other nationally recognized rating service shall not be considered
"unseasoned"; provided, however, that the Fund may invest without limitation in
the Portfolio or in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may purchase call
options on securities. The Fund and Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its net
assets, as measured by the aggregate of the premiums paid for such options held
by it, would be so invested. Neither the Fund nor the Portfolio may invest in
warrants, valued at the lower of cost or market, exceeding 5% of the value of
its net assets. Included within that amount, but not to exceed 2% of the value
of its net assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund or the Portfolio in units
or attached to securities may be deemed to be without value. Neither the Fund
nor the Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no longer
in the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Pennsylvania considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Pennsylvania 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
Pennsylvania issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Pennsylvania continues, however, to have a greater percentage of
its workers employed in manufacturing than the national average, leaving the
economy somewhat cyclical and vulnerable to recessionary forces. During 1993,
manufacturing accounted for 18% of employment. As of May 1995, the unadjusted
unemployment rate for Pennsylvania and the United States was 5.7%. Per capita
income in Pennsylvania for 1993 of $21,352 was higher than the per capita income
of the United States of $20,817.
REVENUES AND EXPENDITURES. Pennsylvania utilizes the fund method of accounting.
The General Fund, the State's largest fund, receives all tax receipts, revenues,
federal grants and reimbursements that are not specified by law to be deposited
elsewhere. Debt service on all obligations, except those issued for highway
purposes or for the benefit of other special revenue funds, is payable from the
General Fund. The General Fund closed fiscal years ended June 30, 1992, June 30,
1993 and June 30, 1994 with fund balances of $87,455, $698,945 and $892,940,
respectively.
The Governor's fiscal year 1996 budget contains no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending will
increase 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million and projects a $3.2
million fiscal year-end unappropriated surplus. The state Tax Stabilization Fund
had a balance at March 31, 1995 of $65.3 million.
The Pennsylvania Constitution requires all proceeds of motor fuels taxes,
vehicle registration fees, license taxes, operators' license fees and other
excise taxes imposed on products used in motor transportation to be used
exclusively for construction, reconstruction, maintenance and repair of and
safety on highways and bridges and for the payment of debt service on
obligations incurred for such purposes. The Motor License Fund is the fund
through which such revenues are accounted for and expended.
The Motor License Fund ended fiscal year ended June 30, 1994 with an
unappropriated balance of $107.5 million on a budgetary basis. State revenue
collections for fiscal year 1995 are projected to increase slightly from fiscal
1994. The budget for fiscal year 1996 includes a 2.3% increase in appropriations
from the prior year. The unappropriated balance of the General Fund at June 30,
1995 is projected to be approximately $3 million on a budgetary basis.
PENNSYLVANIA DEBT. The current Constitutional provisions pertaining to the
Pennsylvania debt permit the issuance of the following types of debt: (i) debt
to suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years (this debt need not be approved by the electorate)
and (iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Total outstanding general obligation debt totalled $5,075.8 million as of
June 30, 1994, an increase of $37.0 million from June 30, 1993. In its current
debt financing plans, Pennsylvania is emphasizing infrastructure investment to
improve and rehabilitate existing capital facilities, such as water supply
systems, and to construct new facilities, such as flood control systems and
public buildings.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
outstanding, may not exceed in the aggregate 20% of the revenues estimated to
accrue to the appropriate fund in the fiscal year. The State is not permitted to
fund deficits between fiscal years with any form of debt. All year end deficit
balances must be funded within the succeeding fiscal year's budget.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years.
STATE-RELATED OBLIGATIONS. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of or revenues derived from the various projects
financed; it is not an obligation of the State. Some of these agencies, however,
are indirectly dependent on state appropriations. State- related agencies and
their outstanding debt as of December 31, 1994 include the Delaware River Joint
Toll Bridge Commission ($56.3 million), the Delaware River Port Authority
($233.9 million), the Pennsylvania Economic Development Financing Authority
($659.9 million), the Pennsylvania Energy Development Authority ($162.1
million), the Pennsylvania Higher Education Assistance Agency ($1,283.8
million), the Pennsylvania Higher Education Facilities Authority ($1,965.8
million), the Pennsylvania Industrial Development Authority ($357.3 million),
the Pennsylvania Infrastructure Investment Authority ($227.5 million), the
Pennsylvania Turnpike Commission ($1,252.6 million), the Philadelphia Regional
Port Authority ($63.9 million) and the State Public School Building Authority
($286.8 million).
The only obligations of state-created agencies in Pennsylvania which bear a
moral obligation of the state are those issued by the Pennsylvania Housing
Finance Agency, a state-created agency which provides housing for lower and
moderate income families in the state, which had $2,300 million of bonds and
notes outstanding, and the Hospitals and Higher Education Facilities Authority
of Philadelphia which issued $21.1 million in bonds in 1993.
LOCAL GOVERNMENT DEBT. Local government in Pennsylvania consists of numerous
individual units. Each unit is distinct and independent of other local units,
although they may overlap geographically.
There is extensive general legislation applying to local government. For
example, the Local Government Unit Debt Act provides for uniform debt limits for
local government units, including municipalities and school districts, and
prescribes methods of incurring, evidencing, securing and collecting debt. Under
the Local Government Unit Debt Act, the ability of Pennsylvania municipalities
and school districts to engage in general obligation borrowing without electoral
approval is generally limited by their recent revenue collection experience.
Generally such subdivisions can levy real property taxes unlimited as to rate or
amount to pay debt service on general obligation borrowings.
Municipalities may also issue revenue obligations without limit and without
affecting their general obligation borrowing capacity if the obligations are
projected to be paid solely from project revenues.
Municipal authorities and industrial development authorities are widespread
in Pennsylvania. An authority is organized by a municipality acting singly or
jointly with another municipality and is governed by a board appointed by the
governing unit of the creating municipality or municipalities. Typically,
authorities are established to acquire, own and lease or operate one or more
projects and to borrow money and issue revenue bonds to finance them.
As of the date of this Statement of Additional Information, the City of
Philadelphia's general obligations are rated Ba, B and BB, by Moody's, S&P and
Fitch, respectively.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $502,250,304. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$2,416,419 (equivalent to 0.48% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $2,054,802 (equivalent to 0.46% (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 $1,300,484 (equivalent to 0.46%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended July 31, 1995 and for the period from the start of business, December
3, 1993, to the fiscal year ended July 31, 1994, $19,615 and $18,110,
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 July 31, 1995, the Principal Underwriter paid to Authorized
Firms sales commissions of $24,545 on sales of Fund shares. During the same
period, the Fund paid sales commission payments under the Plan to the Principal
Underwriter aggregating $24,791. Such payments reduced Uncovered Distribution
Charges. During such period, no contingent deferred sales charges were paid to
the Principal Underwriter. As at July 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $474,000 (which amount was equivalent to 18.1% of the
Fund's net assets on such date). During the fiscal year ended July 31, 1995, the
Fund paid service fee payments under the Plan aggregating $6,812, of which
$6,554 was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $242.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $2,576 and the
Portfolio paid no custodian fees to IBT.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $3,994(2) $135,000(4)
Samuel L. Hayes, III ...... 0 3,955(3) 150,000(5)
Norton H. Reamer .......... 0 3,922 135,000
John L. Thorndike ......... 0 4,043 140,000
Jack L. Treynor ........... 0 4,154 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $988 of deferred compensation.
(3) Includes $1,209 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) 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 January 8, 1991 through July 31, 1995 and for the one year period
ended July 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 3, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
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 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 1/8/91 $1,000 $1,334.07 $1,334.07 33.41% 6.52% 33.41% 6.52%
1 Year
Ended
7/31/95<F2> 7/31/94 $1,000 $1,053.98 $1,043.98 5.40% 5.40% 4.40% 4.40%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<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 July 31, 1995, the yield of the Fund was
4.76%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.76% would be 7.77%, assuming a
combined federal and State tax rate of 38.73%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.88%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.99%. 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 33.9%
Aa or AA 13.2
A 28.5
Baa or BBB 15.7
Ba or BB 0.3
B --
Below B --
Not rated 8.4
------
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
Pennsylvania income tax brackets for 1995. The tax brackets for Pennsylvania
residents subject to Pennsylvania income tax and Pennsylvania county personal
property tax are 24.18% for single filers with taxable income up to $23,350 and
joint filers up to $39,000, 35.78% for single filers with taxable income from
$23,351 to $56,550 and joint filers from $39,001 to $94,250, 38.45% for single
filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 42.91% for single filers with taxable income from $117,951
to $256,500 and joint filers from $143,601 to $256,500; and 46.12% for single
and joint filers with taxable income over $256,500. The applicable federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. These brackets reflect the Pennsylvania county
personal property tax ($.40 per $100 in value) expressed as a percentage of an
investment yielding 5.0%, as well as Pennsylvania income tax (2.80%) and federal
income tax. The tax brackets used in calculating the after-tax yield of the
certificate of deposit are 17.38%, 30.02%, 32.93%, 37.79% and 41.29% and do not
reflect the Pennsylvania county personal property tax as bank deposits are
generally exempt from such tax.
The tax brackets used in calculating the taxable equivalent of a
hypothetical 5.0% yield of the Fund for individuals who reside in Philadelphia
are 28.40%, 39.35%, 41.87%, 46.09% and 49.12%. These brackets reflect the
Pennsylvania county personal property tax ($.40 per $100 in value) expressed as
a percentage of an investment yielding 5.0%, the City of Philadelphia school
district investment income tax of 4.96%, and federal and Pennsylvania state
income taxes. The tax brackets used in calculating the after-tax yield of the
certificate of deposit are 17.38%, 30.02%, 32.93%, 37.79% and 41.29% over the
same ranges of income. Bank deposits are generally exempt from the Pennsylvania
county personal property tax and Philadelphia school district income tax.
All of the above tax brackets assume that state and local taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize, or who
are subject to phaseout of personal exemptions or limitation on the
deductibility of itemized deductions may have higher tax brackets than indicated
above. Investors should consult with their tax advisers for more information
prior to investing in the Fund.
For taxpayers subject to Philadelphia income tax:
TAX BRACKET
28.40% 39.35% 41.87% 46.09% 49.12%
-----------------------------------------------------
Tax free yield .... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent 6.98 8.24 8.60 9.27 9.83
TAX BRACKET*
17.38% 30.02% 32.93% 37.79% 41.29%
-----------------------------------------------------
Certificates of
deposit:
Yield ........... 3.25 3.25 3.25 3.25 3.25
After-tax yield . 2.69 2.27 2.18 2.02 1.91
For taxpayers not subject to Philadelphia income tax:
TAX BRACKET
24.18% 35.78% 38.45% 42.91% 46.12%
-----------------------------------------------------
Tax free yield .... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent 6.59 7.79 8.12 8.76 9.28
TAX BRACKET*
17.38% 30.02% 32.93% 37.79% 41.29%
-----------------------------------------------------
Certificates of
deposit:
Yield ........... 3.25 3.25 3.25 3.25 3.25
After-tax yield . 2.69 2.27 2.18 2.02 1.91
*Bank CDs are exempt from the Pennsylvania county personal property tax and
Philadelphia school district income tax. Accordingly, the combined tax brackets
applicable to after-tax yields are 17.38%, 30.02%, 32.93%, 37.79% and 41.29%.
The following are illustrations of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 5.0%. The illustrations also quantify the federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a hypothetical tax free investment yielding 5.0% and
compare the after-tax return of such investments. The charts are based on
3-month bank CDs (Sources: The Wall Street Journal and Eaton Vance Management).
(The tax bracket used in calculating the CD after-tax yield is 37.79%, as bank
CDs are generally exempt from Pennsylvania county personal property tax and
Philadelphia school district income tax.) These illustrations are not meant to
imply or predict any future rate of return for the Fund. See your financial
adviser for the Fund's current yield and actual CD rates.
The Tax Free Yield Advantage: Philadelphia Residents
(46.09% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
5.00% Tax free investment
9.27% 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: (1,497.93) NONE
After-tax
income: $1,752.07 $5,000.00
The Tax Free Yield Advantage: Excluding Philadelphia Residents
(42.91% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
5.00% Tax free investment
8.76% 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: (1,394.58) NONE
After-tax
income: $1,855.42 $5,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields may be included in advertisements and other material
supplied to present and prospective shareholders.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 25.59% 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 NFSC FEBO Frank W. Hubbard and Jean B. Hubbard,
Moscow, PA owned beneficially and of record 13.59% 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 Pennsylvania Tax Free Fund to EV Classic Pennsylvania
Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income tax
and Pennsylvania State and local tax laws in effect for 1995. It gives the
approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding 6%.
<TABLE>
<CAPTION>
TAXABLE YIELD NEEDED TO MATCH 6% FREE OF
-----------------------------------------------------------
FEDERAL, STATE, FEDERAL, STATE,
1994 TAXABLE INCOME FEDERAL FEDERAL, STATE COUNTY AND COUNTY AND
- -------------------------------------------- FEDERAL STATE AND STATE AND COUNTY PHILADELPHIA PITTSBURGH
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES TAXES TAXES (1) TAXES (2)
- ---------------------- -------------------- ----------- ----------- --------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 2.80% 7.26% 7.80% 8.25% 9.14%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 28.00 2.80 8.57 9.20 9.74 10.79
$ 56,551 - $117,950 $ 94,251 - $143,600 31.00 2.80 8.95 9.60 10.16 11.26
$117,951 - $256,500 $143,601 - $256,500 36.00 2.80 9.65 10.36 10.96 12.14
Over $256,500 Over $256,500 39.60 2.80 10.22 10.97 11.61 12.87
- -----------------------------------------------------------------------------------------------------------------------------------
Equivalent yields are based on a fixed $1,000 investment with all taxes deducted from income. Included in all areas are the
effects of: federal income tax minus savings from itemizing state and local taxes, a 2.80% Pennsylvania income tax and a 4 mill
county personal property tax. (1) Philadelphia equivalent yields also include the 4.96% school income tax. (2) Pittsburgh
equivalent yields also include 4 mill city and 4 mill school property taxes. While it is expected that the Portfolio will invest
primarily in obligations exempt from taxes, other income received by the Fund may be taxable. Yields shown are for illustration
purposes only and are not meant to represent the Fund's actual yield.
</TABLE>
Note: The above-indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions (including
Pennsylvania State and local taxes) for taxpayers with Adjusted Gross Income in
excess of $114,700. The tax brackets and taxable equivalent yields 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 federal tax brackets and equivalent
taxable yields of such taxpayers will be higher than those indicated above. In
addition, the equivalent taxable yields for investors who do not itemize will be
higher than indicated above.
Of course, no assurance can be given that EV Classic Pennsylvania 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 Pennsylvania State and local
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. 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 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 TEXAS MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income taxes. The Fund currently seeks to achieve its
investment objective by investing its assets in the Texas Municipals Portfolio
(the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value) is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate, (including limited partnership
interests, 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may engage in options, futures or forward
transactions if more than 5% of its net assets, as measured by the aggregate
of the premiums paid by the Fund or the Portfolio, would be so invested. The
Fund and Portfolio may purchase put options on municipal obligations only if,
after such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its assets,
may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Texas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Texas 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 Texas
issuers. Neither the Trust nor the Portfolio has independently verified this
information.
Once largely dependent on the drilling, production, refining, chemical and
energy-related manufacturing sectors, the economy of Texas has diversified
with the major source of job growth in the State now being the service-
producing sector (which includes transportation and public utilities,
finances, insurance and real estate, trade, services, and government). Over
the past decade, the population of Texas grew at a rate twice as fast as that
of the entire United States. Currently the third largest state in the nation,
Texas is expected to move into second place by the late 1990's.
The Texas legislature passed a $80 billion biennial budget for fiscal
years 1996 and 1997. The new budget includes no new tax increases.
Historically, the primary sources of the State's revenues have been sales
taxes, mineral severance taxes and Federal grants. The beginning fiscal 1994
cash balance was $1.6 billion. The State has no personal or corporate income
tax, although the State does impose a corporate franchise tax based on the
amount of a corporation's capital and surplus. A bill was passed by the
legislature reforming educational aid. Also, the State provided additional
funding construction for poor districts.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $28,227,021. For the
fiscal year ended July 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $56,319 (equivalent to 0.21% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of the full amount of its advisory fee and BMR
was allocated a portion of the expenses related to the operation of the
Portfolio in the amount of $18,606. For the ten months ended July 31, 1994,
absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$31,214 (equivalent to 0.17% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made
a reduction of the full amount of its advisory fee and BMR was allocated a
portion of the expenses related to the operation of the Portfolio in the
amount of $35,347. 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 $9,014
(equivalent to 0.16% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a
portion of the expenses related to the operation of the Portfolio in the
amount of $13,473. 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 July 31, 1995 and for the period from the start of business,
December 8, 1993, to the fiscal year ended July 31, 1994, $15,081 and $21,269,
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 July 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $5,561 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $5,614. Such payments reduced Uncovered
Distribution Charges. During such period, no contingent deferred sales charges
were paid to the Principal Underwriter. As at July 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Plan amounted to approximately $81,000 (which amount was equivalent to
17.3% of the Fund's net assets on such date). During the fiscal year ended
July 31, 1995, the Fund paid service fee payments under the Plan aggregating
$1,486, of which $1,483 was paid to Authorized Firms and the balance of which
was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $22.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $4,862 and the
Portfolio paid IBT $7,834.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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, Timothy T. Browse (36) is a Vice President of the Portfolio. Mr.
Browse 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 March 24, 1992 through July 31, 1995 and for the one year period
ended July 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 8, 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 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 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 3/24/92 $1,000 $1,222.46 $1,222.46 22.25% 6.16% 22.25% 6.16%
1 Year
Ended
7/31/95<F2> 7/31/94 $1,000 $1,051.56 $1,041.60 5.16% 5.16% 4.16% 4.16%
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.
</FN>
</TABLE>
For the thirty-day period ended July 31, 1995, the yield of the Fund was
4.60%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.60% would be 6.67%,
assuming a federal tax rate of 31%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 5.09%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.21%. 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 55.9%
Aa or AA 7.5
A 18.0
Baa or BBB 12.3
Ba or BB 1.1
B --
Below B --
Not rated 5.2
-----
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 federal income tax
brackets applicable for 1995: 15% for single filers with taxable income up to
$23,350 and joint filers up to $39,000; 28% for single filers with taxable
income from $23,351 to $56,550 and joint filers from $39,001 to $94,250; 31%
for single filers with taxable income from $56,551 to $117,950 and joint
filers from $94,251 to $143,600; 36% for single filers with taxable income
from $117,951 to $256,500 and joint filers from $143,601 to $256,500; 39.6%
for single and joint filers with taxable income over $256,500. 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 federal income 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.
TAX BRACKET
15% 28% 31% 36% 39.6%
------------------------------------------------
Tax free yield ........... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ....... 5.88 6.94 7.25 7.81 8.28
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
The Tax Free Yield Advantage
(36% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
5.00% Tax free investment
7.81% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $1,000 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 federal tax bracket is 36% 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.
TAXES
In most every state which has an income tax, dividends paid by a mutual
fund attributable to investments in a particular state's municipal obligations
are exempt from both federal and such state's income tax. If Texas adopts an
income tax in the future, and assuming that its income tax policy with respect
to mutual funds investing in Texas state and local municipal obligations would
be similar to the general tax policy of other states, dividends paid by the
Fund would be exempt from Texas state income tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 88.7% 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: Margaretha R. Lafferty,
Houston, TX (5.4%) and Dick D. Heller & Evelyn Jane Heller Jt Ten, Mission, TX
(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 Texas Tax Free Fund to EV Classic Texas
Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table shows the approximate taxable bond yields which are equivalent
to tax-exempt bond yields from 4% to 7% under the regular federal income tax
laws that apply to 1995.
<TABLE>
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE YOUR JOINT THIS FEDERAL 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS* RETURN IS* BRACKET EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
- ------------------------------------------ ---------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.0% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 28.0 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551 - $117,950 $ 94,251 - $143,600 31.0 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951 - $256,500 $143,601 - $256,500 36.0 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.6 6.62 7.45 8.28 9.11 9.93 10.76 11.59
*Net amount subject to federal personal income tax after deductions and exemptions.
Note: The above-indicated federal income tax brackets do not take into account the effect of a reduction in the deductibility of
itemized deductions for taxpayers with adjusted gross income in excess of $114,700. The tax brackets also do not take into account
the phaseout of personal exemptions for single filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and equivalent taxable yields of such taxpayers will be
higher than those indicated above. Yields shown are for illustration purposes only and are not meant to represent the Fund's
actual yield.
Of course, no assurance can be given that EV Classic Texas Municipals Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations, the interest from which is exempt from the regular federal
income tax, other income received by the Portfolio and allocated to the Fund may be taxable. This table does not take into account
state or local taxes, if any, payable on Fund distributions. It should also be noted that the interest earned on certain "private
activity bonds" issued after August 7, 1986, while exempt from the regular federal income tax, is treated as a tax preference item
which could subject the recipient to the federal alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable.
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.
</TABLE>
<PAGE>
[LOGO]
EATON VANCE
=================
MUTUAL FUNDS
EV CLASSIC MUNICIPAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1995
EV CLASSIC ARIZONA MUNICIPALS FUND
EV CLASSIC COLORADO MUNICIPALS FUND
EV CLASSIC CONNECTICUT MUNICIPALS FUND
EV CLASSIC MICHIGAN MUNICIPALS FUND
EV CLASSIC MINNESOTA MUNICIPALS FUND
EV CLASSIC NEW JERSEY MUNICIPALS FUND
EV CLASSIC PENNSYLVANIA MUNICIPALS FUND
EV CLASSIC TEXAS MUNICIPALS FUND
EV CLASSIC
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 24 Federal Street, Boston, MA 02110
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-TFC12/1SAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
December 1, 1995
EV MARATHON MUNICIPAL FUNDS
EV MARATHON ARIZONA MUNICIPALS FUND EV MARATHON MINNESOTA MUNICIPALS FUND
EV MARATHON COLORADO MUNICIPALS FUND EV MARATHON NEW JERSEY MUNICIPALS FUND
EV MARATHON CONNECTICUT MUNICIPALS FUND EV MARATHON PENNSYLVANIA MUNICIPALS FUND
EV MARATHON MICHIGAN MUNICIPALS FUND EV MARATHON TEXAS 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 OF CONTENTS
Page
PART I
Additional Information about Investment Policies .......................... 1
Investment Restrictions ................................................... 7
Trustees and Officers ..................................................... 8
Investment Adviser and Administrator ...................................... 10
Custodian ................................................................. 12
Service for Withdrawal .................................................... 12
Determination of Net Asset Value .......................................... 13
Investment Performance .................................................... 13
Taxes ..................................................................... 15
Principal Underwriter ..................................................... 17
Distribution Plan ......................................................... 17
Portfolio Security Transactions ........................................... 19
Other Information ......................................................... 20
Independent Certified Public Accountants .................................. 21
Financial Statements ...................................................... 22
Appendix .................................................................. 23
PART II
EV Marathon Arizona Municipals Fund ...................................... a-1
EV Marathon Colorado Municipals Fund ..................................... b-1
EV Marathon Connecticut Municipals Fund .................................. c-1
EV Marathon Michigan Municipals Fund ..................................... d-1
EV Marathon Minnesota Municipals Fund .................................... e-1
EV Marathon New Jersey Municipals Fund ................................... f-1
EV Marathon Pennsylvania Municipals Fund ................................. g-1
EV Marathon Texas Municipals Fund ........................................ h-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED DECEMBER 1, 1995, 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 exempt from federal income taxes and is not a tax preference item for
purposes of the federal alternative minimum tax: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986 which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of interest on
any municipal obligation, the Portfolio will generally rely on an opinion of
the issuer's counsel (when available) and will not undertake any independent
verification of the basis for the opinion. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986
is exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the
recipient's liability for the federal alternative minimum tax. For corporate
shareholders, the Fund's distributions derived from interest on all municipal
obligations (whenever issued) is included in "adjusted current earnings" for
purposes of the federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if the
secondary market purchase price is less than (i) the stated principal amount
payable at maturity, in the case of an obligation that does not have original
issue discount or (ii) in the case of an obligation that does have original
issue discount, the sum of the issue price and any original issue discount
that accrued before the obligation was purchased, subject to a de minimus
exclusion.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to
fund a wide range of public projects including the construction or improvement
of schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water, sewer and solid waste disposal systems;
highways, bridges and tunnels; port, airport and parking facilities;
transportation systems; housing facilities, colleges and universities and
hospitals. Although the principal security behind these bonds varies widely,
many provide additional security in the form of a debt service reserve fund
whose monies may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without legal obligation)
to make up deficiencies in the debt service reserve fund. Lease rental revenue
bonds issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds are in most cases
revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants
or similar rights covering equity securities. Such warrants or rights may be
held indefinitely, but if exercised, the Portfolio anticipates that it would,
under normal circumstances, dispose of any equity securities so acquired
within a reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but
rather make a single payment at maturity representing both principal and
interest. Bonds may be issued or subsequently offered with interest coupons
materially greater or less than those then prevailing, with price adjustments
reflecting such deviation.
The obligations of any person or entity to pay the principal of and
interest on a municipal obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. The Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
Boston Management and Research (the "Investment Adviser")) to evaluate or
protect any real estate, facilities or other assets securing any such
obligation or acquired by the Portfolio as a result of any such event, and the
Portfolio may also manage (or engage other persons to manage) or otherwise
deal with any real estate, facilities or other assets so acquired. The
Portfolio anticipates that real estate consulting and management services may
be required with respect to properties securing various municipal obligations
in its portfolio or subsequently acquired by the Portfolio. The Portfolio will
incur additional expenditures in taking protective action with respect to
portfolio obligations in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and Fitch Investors Service, Inc.
("Fitch") represent their opinions as to the quality of the municipal
obligations which they undertake to rate. It should be emphasized, however,
that ratings are based on judgment and are not absolute standards of quality.
Consequently, municipal obligations with the same maturity, coupon and rating
may have different yields while obligations of the same maturity and coupon
with different ratings may have the same yield. In addition, the market price
of such obligations will normally fluctuate with changes in interest rates,
and therefore the net asset value of the Portfolio will be affected by such
changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in a particular State, 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.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state and local
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject
to a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt
service payments. Moreover, since a portion of housing, medical care and other
services may be financed by an initial deposit, it is important that the
facility maintain adequate financial reserves to secure estimated actuarial
liabilities. The ability of management to accurately forecast inflationary
cost pressures is an important factor in this process. The facilities may also
be affected adversely by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health
care or conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five
years. The North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The June, 1995 unemployment rate
was 13.9%.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the federal government. Most Federal taxes,
except those such as social security taxes that are imposed by mutual consent,
are not levied in Puerto Rico. However, in conjunction with the 1993 U.S.
budget plan, Section 936 of the Internal Revenue Code was amended and provided
for two alternative limitations to the Section 936 credit. The first option
will limit the credit against such income to 40% of the credit allowable under
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option is a wage and depreciation based credit. The
reduction of the tax benefits to those U.S. companies with operations in
Puerto Rico may lead to slower growth in the future. There can be no assurance
that these modifications will not lead to a weakened economy, a lower rating
on Puerto Rico's debt or lower prices for Puerto Rican bonds that may be held
by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. Puerto Ricans voted to
retain Commonwealth status, leaving intact the current relationship with the
federal government. There can be no assurance that the statehood issue will
not be brought to a vote in the future. A successful statehood vote in Puerto
Rico would then require ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas was hit by a hurricane and sustained extensive damage. The
longer term impact on the tourism industry is not yet known. There can be no
assurances that the market for USVI bonds will not be affected.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experience a budget
deficit in 1989 due to wage settlements with the unionized government
employees. A deficit was also experienced in 1990 due to Hurricane Hugo. The
USVI recorded a small surplus in fiscal year 1991. At the end of fiscal 1992,
the last year for which results are available, the USVI had an unreserved
General Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam
is expected to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. The Naval Air Station, one of several
U.S. military facilities on the island, has been slated for closure by the
Defense Base Closure and Realignment Committee; however, the administration
plans to use these facilities to expand the island's commercial airport. Guam
is also heavily reliant on tourists, particularly the Japanese. For 1994, the
financial position of Guam was weakened as it incurred an unaudited General
Fund operating deficit. The administration has taken steps to improve its
financial position; however, there are no guarantees that an improvement will
be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which
is issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to
these arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. Such arrangements are, therefore, subject to the risk
that the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by the Portfolio. In the event the Portfolio acquires an unrated municipal
lease obligation, the Investment Adviser will be responsible for determining
the credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue
and compound over the period until maturity at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be
insured as to their scheduled payment of principal and interest under either
(i) an insurance policy obtained by the issuer or underwriter of the
obligation at the time of its original issuance or (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value. In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in the lowest investment grade, below investment grade and
comparable unrated obligations through active portfolio management, credit
analysis and attention to current developments and trends in the economy and
the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of
a market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the
same time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of municipal
obligations or changes in the investment objectives of investors. Such trading
may be expected to increase the portfolio turnover rate, which may increase
capital gains and the expenses incurred in connection with such trading. The
Portfolio anticipates that its annual portfolio turnover rate will generally
not exceed 100% (excluding turnover of securities having a maturity of one
year or less).
WHEN ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-
issued" basis, that is, delivery and payment for the securities normally
taking place within a specified number of days after the date of the
Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in
connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts generally require the issuer to sell and the Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future.
The Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Portfolio
enters into the purchase commitment. The Portfolio's custodian will segregate
cash or high grade liquid debt securities in a separate account of the
Portfolio in an amount at least equal to the when-issued commitments. If the
value of the securities placed in the separate account declines, additional
cash or high grade liquid debt securities will be placed in the account on a
daily basis so that the value of the account will at least equal the amount of
the Portfolio's when-issued commitments. When the Portfolio commits to
purchase a security on a when-issued basis it records the transaction and
reflects the value of the security in determining its net asset value.
Securities purchased on a when-issued basis and the securities held by the
Portfolio are subject to changes in value based upon the perception of the
creditworthiness of the issuer and changes in the level of interest rates
(i.e., appreciation when interest rates decline and depreciation when interest
rates rise). Therefore, to the extent that the Portfolio remains substantially
fully invested at the same time that it has purchased securities on a when-
issued basis, there will be greater fluctuations in the Portfolio's net asset
value than if it solely set aside cash to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Variable rate obligations normally provide that the
holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, a bank may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder.
The Portfolio would anticipate using these obligations as cash equivalents
pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Interest income generated by certain bonds
having demand features may not qualify as tax-exempt interest. Longer term
fixed-rate bonds may give the holder a right to request redemption at certain
times (often annually after the lapse of an intermediate term). These bonds
are more defensive than conventional long term bonds (protecting to some
degree against a rise in interest rates) while providing greater opportunity
than comparable intermediate term bonds, because the Portfolio may retain the
bond if interest rates decline. By acquiring these kinds of obligations the
Portfolio obtains the contractual right to require the issuer of the security
or some other person (other than a broker or dealer) to purchase the security
at an agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not assign
any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price.
The Portfolio intends to limit this type of transaction to institutions (such
as banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to
facilitate portfolio liquidity or (if the seller so agrees) to hedge against
rising interest rates. There is no assurance that this kind of put option will
be available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates.
A separate put option may not be marketable or otherwise assignable, and sale
of the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to
assign any value to any separate put option which may be acquired to
facilitate portfolio liquidity, inasmuch as the value (if any) of the put will
be reflected in the value assigned to the associated security; any put
acquired for hedging purposes would be valued in good faith under methods or
procedures established by the Trustees of the Portfolio after consideration of
all relevant factors, including its expiration date, the price volatility of
the associated security, the difference between the market price of the
associated security and the exercise price of the put, the creditworthiness of
the issuer of the put and the market prices of comparable put options.
Interest income generated by certain bonds having put features may not qualify
as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio's custodian and maintained on a current basis at an amount at least
equal to the market value of the securities loaned, which will be marked to
market daily. Cash equivalents include short-term municipal obligations as
well as taxable certificates of deposit, commercial paper and other short-term
money market instruments. The Portfolio would have the right to call a loan
and obtain the securities loaned at any time on up to five business days'
notice. During the existence of a loan, the Portfolio will continue to receive
the equivalent of the interest paid by the issuer on the securities loaned and
will also receive a fee, or all or a portion of the interest on investment of
the collateral, if any. However, the Portfolio may pay lending fees to such
borrowers. The Portfolio would not have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of
the securities loaned would not exceed 30% of the Portfolio's total assets.
The Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects
to purchase). To hedge against changes in rates, the Portfolio may enter into
(i) futures contracts for the purchase or sale of debt securities, (ii)
futures contracts on securities indices and (iii) futures contracts on other
financial instruments and indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or
foreign exchange or board of trade.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price
fluctuations in securities held by the Portfolio or which it expects to
purchase. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns,
or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities it intends to purchase. As evidence of
this hedging intent, the Portfolio expects that on 75% or more of the
occasions on which it takes a long futures (or option) position (involving the
purchase of futures contracts), the Portfolio will have purchased, or will be
in the process of purchasing, equivalent amounts of related securities in the
cash market at the time when the futures (or option) position is closed out.
However, in particular cases, when it is economically advantageous for the
Portfolio to do so, a long futures position may be terminated (or an option
may expire) without the corresponding purchase of securities. The Portfolio
will engage in transactions in futures and related options contracts only to
the extent such transactions are consistent with the requirements of the
Internal Revenue Code for maintaining qualification of the Fund as a regulated
investment company for federal income tax purposes (see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits,
which will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked
to market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities held
by the Portfolio were replaced once in a period of one year. A high turnover
rate (100% or more) necessarily involves greater expenses to the Portfolio.
The Portfolio engages in portfolio trading (including short-term trading) if
it believes that a transaction including all costs will help in achieving its
investment objective.
INVESTMENT RESTRICTIONS
Certain 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. The Fund's fundamental investment
restrictions are set forth under "Investment Restrictions" in Part II of this
Statement of Additional Information.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the 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 also adopted nonfundamental investment
policies which may be changed by the Trustees of the Trust with respect to the
Fund without approval by the Fund's shareholder's or by the Trustees of the
Portfolio with respect to the Portfolio without the approval of the Fund or
the Portfolio's other investors. The Fund's nonfundamental policies are set
forth under "Investment Restrictions" in Part II of this Statement of
Additional Information.
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.
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 BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Woodubury
was elected Assistant Secretary on Jun 19, 1995.
For additional officers of the Portfolio (if any), 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 $16 billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable investment-
grade and high-yield securities, tax-exempt investment-grade and high-yield
securities, and U.S. Government securities. The equity division covers stocks
ranging from blue chip to emerging growth companies.
Eaton Vance offers single-state tax-free portfolios in more states than
any other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual
fund portfolios. Assets managed by the municipal investment group are
currently over $9.1 billion. The following persons manage one or more of the
Eaton Vance tax-free portfolios. For the identity of the Portfolio's portfolio
manager, see the Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II 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. In addition, Eaton Vance owns all the stock of Northeast
Properties, Inc., which is engaged in real estate investment, consulting and
management. EVC owns all the stock of Fulcrum Management, Inc., and MinVen
Inc., which are engaged in the development of precious metal properties. EVC
also owns 21% of the Class A shares of Lloyd George Management (B.V.I.)
Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV may
also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT
charges fees which are competitive within the industry. A portion of the fee
relates to custody, bookkeeping and valuation services and is based upon a
percentage of Fund and Portfolio net assets and a portion of the fee relates
to activity charges, primarily the number of portfolio transactions. These
fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day, U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. Landon T. Clay, a Director of EVC and an
officer, Trustee or Director of other members of the Eaton Vance organization,
owns approximately 13% of the stock of IBT. Management believes that such
ownership does not create an affiliated person relationship between the Fund
or the Portfolio and IBT under the Investment Company Act of 1940. For the
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 plan accounts will be credited at net asset value
as of the record date for each distribution. Continued withdrawals in excess
of current income will eventually use up principal, particularly in a period
of declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) 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 service uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities, various relationships between securities, and yield to
maturity in determining value. Taxable obligations for which price quotations
are readily available normally will be valued at the mean between the latest
available bid and asked prices. Open futures positions on debt securities are
valued at the most recent settlement prices, unless such price does not
reflect the fair value of the contract, in which case the positions will be
valued by or at the direction of the Trustees of the Portfolio. Other assets
are valued at fair value using methods determined in good faith by the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, 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 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 July 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 is organized as a Massachusetts business trust. As permitted by
Massachusetts law, there will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees of the Trust holding office have been elected by
shareholders. In such an event the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes as do not have a materially adverse effect on the financial
interests of shareholders or if they deem it necessary to conform it to
applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any
emergency as determined by the Commission which makes it impracticable for the
Portfolio to dispose of its securities or value its assets, or during any
other period permitted by order of the Commission for the protection of
investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual
Report accompanies this Statement of Additional Information.
Registrant incorporates by reference the audited financial information for
the Fund's and Portfolio's for the fiscal year ended July 31, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950135-95-001995).
<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.
- ----------
+ 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>
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus
(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse change could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON ARIZONA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Arizona State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Arizona Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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 it of initial or maintenance margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value) is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of its
investment adviser, or the Fund if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
are not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate, (including limited partnership
interests, 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its principal underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may engage in options, futures or forward
transactions if more than 5% of its net assets, as measured by the aggregate
of the premiums paid by the Fund or the Portfolio, would be so invested. The
Fund and Portfolio may purchase put options on municipal obligations only if,
after such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Arizona considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Arizona 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
Arizona issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The ability of Arizona and its political subdivisions to respond to the
ever-increasing burdens placed upon them by the growth of the 1980's has been
limited, in part, by Constitutional and legislative restrictions on property
tax increases and limitations on annual expenditure increases. Subject to
certain exceptions, the maximum amount of property taxes levied by any Arizona
county, city, town or community college district for their operations and
maintenance expenditures cannot exceed the amount levied in a preceding year
by more than two percent. Certain taxes are specifically exempt from this
limit, including taxes levied for debt service payments. Annual property tax
levies for the payment of general obligation bonded indebtedness are unlimited
as to rate or amount. However, there are Constitutional limitations on the
aggregate amount of general obligation bonded indebtedness an Arizona
municipality may incur, and these limitations could impede a municipality's
ability to respond to the needs of a fast-growing population for additional
public facilities and services.
Arizona State government general fund revenue growth in fiscal year 1994
exceeded projections, increasing 10.7% overall. The 10.8% increase in sales
tax revenue and the 9.3% increase in income tax revenue reflects the increased
economic growth in the State. With revenue growth outpacing an 8.8% increase
in expenditures, the State general fund ended fiscal year 1994 with a total
fund balance of $420.2 million. Fiscal year 1995 is expected to close with a
general fund balance of $115 million, and a budget stabilization ("rainy day"
fund) balance of approximately $203 million, with the two combined equal to
7.3% of total general fund expenditures.
The 1995 legislature enacted a $200 million income tax reduction package
and has committed to enact a $200 million property tax reduction package in
1996. In 1992, Arizona voters passed a measure that requires a two-thirds vote
of the legislature to increase State revenue. Accordingly, it will be more
difficult to reverse the current and planned tax reductions, which may
adversely affect State fund balances and fiscal conditions.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $144,521,015. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$629,148 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $505,544 (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 $268,894 (equivalent to 0.39%
(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 $81,397
(equivalent to 0.35% (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
July 31, 1995, the Principal Underwriter paid sales commissions of $513,727 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 $1,086,172, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $862,000 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $5,271,000
(which amount was equivalent to 3.7% of the Fund's net assets on such date).
During the fiscal year ended July 31, 1995, the Fund paid service fee payments
under the Plan aggregating $182,128, of which $181,305 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $1,757.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $13,840 and the
Portfolio paid IBT $65,302.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $1,692(2) $135,000(4)
Samuel L. Hayes, III ...... 643 1,736(3) 150,000(5)
Norton H. Reamer .......... 628 1,752 135,000
John L. Thorndike ......... 637 1,841 140,000
Jack L. Treynor ........... 686 1,784 140,000
- ----------
(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, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the 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 25, 1991 through July 31,
1995 and for the one year period ended July 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE DE- MENT AFTER DE- DEDUCTING DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2> -------------------------- -------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F3> 7/25/91<F1> $1,000 $1,353.52 $1,333.52 35.35% 7.82% 33.35% 7.42%
1 Year
Ended
7/31/95 7/31/94 $1,000 $1,066.36 $1,016.36 6.64% 6.64% 1.64% 1.64%
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 July 25, 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 July 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 6.91%,
assuming a combined federal and State tax rate of 34.59%.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 17, 1995) was 4.70%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.80%.
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 42.5%
Aa or AA 20.2
A 22.0
Baa or BBB 11.1
Ba or BB 1.7
B --
Below B --
Not rated 2.5
-----
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
Arizona tax brackets applicable for 1995: 17.98% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 31.74% for single
filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 34.59% for single filers with taxable income from $56,551
to $117,950 and joint filers from $94,251 to $143,600; 39.58% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 42.98% 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 Arizona 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 bracket than indicated above. The
brackets are also based on the highest Arizona tax rate within each bracket.
As a result, some taxpayers may have lower tax brackets within 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
17.98% 31.74% 34.59% 39.58% 42.98%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.10 7.33 7.64 8.28 8.77
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.67 2.22 2.13 1.96 1.85
</TABLE>
The Tax Free Yield Advantage
(39.58% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
5.00% Tax free investment
8.28% 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: (1,286.35) NONE
After-tax income: $1,963.65 $5,000.00
The 1995 combined tax bracket takes into account federal and Arizona State
income taxes. Assuming the deductibility of State taxes on the federal return,
the bracket is 39.58% 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 11.1% 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 Arizona Tax Free Fund to EV Marathon Arizona
Tax Free Fund on February 1, 1994 and to EV Marathon Arizona Municipals Fund
on December 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 Arizona 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 ARIZONA STATE
SINGLE FEDERAL AND TAX EXEMPT YIELD OF:
RETURN JOINT RETURN ARIZONA 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- STATE 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 17.98% 4.88% 5.49% 6.10% 6.71% 7.31% 7.92% 8.53%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 31.74 5.86 6.59 7.33 8.06 8.79 9.52 10.26
$ 56,551 - $117,950 $ 94,251 - $143,600 34.59 6.12 6.88 7.64 8.41 9.17 9.94 10.70
$117,951 - $256,500 $144,601 - $256,500 39.58 6.62 7.45 8.28 9.10 9.93 10.76 11.59
Over $256,500 Over $256,500 42.98 7.02 7.89 8.77 9.65 10.52 11.40 12.28
<F1> Net amount subject to federal and Arizona personal income tax after deductions and exemptions.
<F2> The combined federal and Arizona tax brackets are calculated using the highest Arizona 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 Arizona 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 Arizona 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 Arizona Municipals Fund
will achieve any specific tax exempt yield. While it is expected that a
substantial portion of the interest income distributed to Fund Shareholders
will be exempt from the regular federal income tax and Arizona 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 Arizona 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 COLORADO MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Colorado State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Colorado Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value) is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933, or participate on a joint or a joint and
several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis is
not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures contracts on securities and on securities, economic and
other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its underwriter, as principal;
however, any such person or concerns may be employed as a broker upon customary
terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without limitation in the
Portfolio or in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may purchase securities
of unseasoned issuers, including their predecessors, which have been in
operation for less than three years, if by reason thereof the value of its
aggregate investment in such class of securities will exceed 5% of its total
assets, provided that the issuers of securities rated by Moody's, S&P, Fitch or
any other nationally recognized rating service shall not be considered
"unseasoned"; provided, however, that the Fund may invest without limitation in
the Portfolio or in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may engage in options,
futures or forward transactions if more than 5% of its net assets, as measured
by the aggregate of the premiums paid by the Fund or the Portfolio, would be so
invested. The Fund and Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio may invest in warrants,
valued at the lower of cost or market, exceeding 5% of the value of its net
assets. Included within that amount, but not to exceed 2% of the value of its
net assets, may be warrants which are not listed on the New York or American
Stock Exchange. Warrants acquired by the Fund or the Portfolio in units or
attached to securities may be deemed to be without value. Neither the Fund nor
the Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Colorado considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Colorado 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
Colorado issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Large public works projects, a pickup in the housing sector and growth in
the trade and services industries led to moderate employment gains for the State
during the early 1990's. Certain areas of manufacturing, however, have been
adversely impacted by the prolonged U.S. downturn and by relatively heavy
reliance on defense contracts and military payroll.
The major revenue sources of the State are the individual income tax and the
general sales and use tax. Because of limitations contained in the State
constitution, the State of Colorado issues no general obligation bonds. Several
agencies and instrumentalities of State government, however, are authorized by
statute to issue bonds secured by revenues from specific projects and activities
or to enter into lease-purchase financings which are subject to annual
appropriation. Additionally, the State is authorized to issue short-term revenue
anticipation notes. To the extent the Portfolio holds debt of local units of
government whose revenues may rely in part on distributions from the State, the
fiscal health of the State will have an indirect affect on the Portfolio. The
State is required to have a balanced budget each fiscal year. Therefore, in the
event of a funding gap, the State must cut expenditures and/or raise revenues.
The latter is difficult, especially since the passage of the TABOR Amendment
(see below). Strong growth in income tax and sales tax collections recently
contributed to larger increases in the unreserved fund balance than had been
budgeted. In fiscal year 1993-94, the State had revenue collections which
exceeded expenditures by $38 million. In fiscal year 1994-95, revenues exceeded
expenditures by $94 million. The State will make a $74 million contribution to
an emergency reserve, leaving the general fund reserve at $276 million, or
roughly 7.6% of total annual appropriations. Such emergency reserve transfers
are not foreseen to be required in the next several years. Revenues for the
1995-96 fiscal year are budgeted to increase 4% while expenditures will increase
6%.
There are approximately 1,800 units of local government in Colorado,
including counties, statutory cities and towns, home-rule cities and counties,
school districts and a variety of water, sewer and other special districts, all
with various constitutional and statutory authority to levy taxes and incur
indebtedness. The major sources of revenue for payment of indebtedness are the
ad valorem property tax, which presently is imposed and collected solely at the
local level, although the State is also authorized to levy the tax, sales and
use taxes, and revenue from special projects. Residential real property is
presently assessed at 10.36% of its actual value. All other property is assessed
at 29% of its actual value except producing mines and oil and gas properties.
Oil and gas properties are assessed at 87.5%.
A 1992 amendment to the State Constitution (the "TABOR Amendment") restricts
growth of State and local government spending to the rate of inflation plus
growth (as measured by population, school enrollment, or construction depending
on the government entity); and requires voter approval of all new taxes or tax
increases and the issuance of most types of debt. Though the TABOR Amendment is
not expected to have an immediate effect on the credit quality of state and
local governments, it will likely reduce the financial flexibility of all levels
of government in Colorado over time. In particular, local governments dependent
on taxes on residential property are being squeezed between the TABOR Amendment
requirements of voter approval for increased mill levies and an earlier State
Constitutional amendment which has had the effect of lowering the assessment
rate on residential property from 21% to 10.36% over the past 8 years. Younger
or rapidly growing municipalities with large infrastructure requirements may
have particular difficulty finding the revenues needed to finance their growth.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $46,077,166. For the
fiscal year ended July 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $128,496 (equivalent to 0.28% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $69,064.
For the ten months ended July 31, 1994, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $67,224 (equivalent to 0.23% (annualized)
of the Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its advisory
fee and BMR was allocated a portion of the expenses related to the operation of
the Portfolio in the amount of $31,504. 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
$15,122 (equivalent to 0.16% (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 $12,114.
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, absent a fee reduction, the Fund would have paid Eaton Vance advisory
fees of $2,488 (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 Eaton Vance was allocated
a portion of expenses related to the operation of the Fund in the amount of
$70,823.
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 July 31,
1995, the Principal Underwriter paid sales commissions of $314,367 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
$330,051, 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 July 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $1,925,000 (which amount was
equivalent to 4.4% of the Fund's net assets on such date). During the fiscal
year ended July 31, 1995, the Fund paid service fee payments under the Plan
aggregating $41,952, of which $41,880 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $545 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $7,169 and the
Portfolio paid IBT $16,604.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $333(2) $135,000(4)
Samuel L. Hayes, III ...... 32 322(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, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the 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 July 31, 1995
and for the one year period ended July 31, 1995.
<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<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2>-------------------------- --------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F3> 8/25/92<F1> $1,000 $1,172.15 $1,132.15 17.22% 5.57% 13.22% 4.33%
1 Year
Ended
7/31/95<F3> 7/31/94 $1,000 $1,055.75 $1,005.75 5.58% 5.58% 0.58% 0.58%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<F1> Investment operations began on August 25, 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 July 31, 1995, the yield of the Fund was
4.83%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.83% would be 7.38%, assuming a
combined federal and State tax rate of 34.45%. If a portion of the Portfolio's
expenses had not been allocated to the Investment Adviser, the Fund would have
had a lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 17, 1995) was 4.97%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.08%. 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 48.2%
Aa or AA 17.6
A 16.4
Baa or BBB 16.8
Ba or BB --
B --
Below B --
Not rated 1.0
-----
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
Colorado 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 Colorado 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. 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 or predict any future rate of return for the Fund.
<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
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 Colorado 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 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 6.9% 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 Colorado Tax Free Fund to EV Marathon Colorado Tax Free
Fund on February 1, 1994 and to EV Marathon Colorado Municipals Fund on December
1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income tax
and Colorado 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%.
A FEDERAL AND COLORADO STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- --------------------- CO 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 Colorado personal income tax after deductions and exemptions.
<F2> The Colorado income tax rate is 5%. The combined tax rates assume that Colorado 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 Colorado State income taxes) for
taxpayers with adjusted gross income in excess $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 Colorado 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 Colorado 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 Colorado 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 CONNECTICUT 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 Connecticut Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may engage in options, futures or forward
transactions if more than 5% of its net assets, as measured by the aggregate
of the premiums paid by the Fund or the Portfolio, would be so invested. The
Fund and Portfolio may purchase put options on municipal obligations only if,
after such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Connecticut considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Connecticut 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 Connecticut issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Although the manufacturing sector has traditionally been of prime economic
importance to Connecticut, the non-manufacturing sector of employment
(primarily aircraft engines, helicopters and submarines) now dominate the
State's economy. Approximately 82% of the State's non-agricultural employment
is in the non-manufacturing sector, with 30% of the total in the service
sector, 22% in the wholesale and retail trade sector, and 14% in the
government sector. Defense-related business plays an important role in the
Connecticut economy, and defense awards to Connecticut have traditionally been
among the highest in the nation on a per capita basis. However, in recent
years the federal government has reduced defense-related spending which has
had an adverse impact on the Connecticut economy.
As of June 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 5.4%, compared to 5.6% for the nation. Between June 1994
and June 1995, the State lost 1,700 non-farm jobs, with gains in the services
and construction sectors being offset by losses in the manufacturing (durable
goods), finance, insurance and real estate sectors of the economy. The State's
economy is beginning a slow recovery, constrained by military spending cuts
and cost containment pressures in the insurance and biomedical industries. The
full economic impact of continued corporate downsizing in the defense and
insurance industries may not be fully realized.
The State derives over 70% of its revenues from taxes imposed by the
State. The two major taxes have been the sales and use tax and the corporation
business tax, each of which is sensitive to changes in the level of economic
activity in the State, but the Connecticut personal income tax on individuals,
trusts, and estates enacted in 1991 is expected to supersede them in
importance. In order to promote economic stability and provide a positive
business climate, several tax changes were adopted during the 1993 legislative
session. Among the most significant changes were the changes to the
Corporation Business Tax -- a 4 year gradual rate reduction to 11.25%
beginning January 1, 1995; 11% beginning January 1, 1996; 10.5% beginning
January 1, 1997 and 10% beginning January 1, 1998.
During fiscal 1991-92, the State issued $965.7 million of Economic
Recovery Notes, of which $455.6 million remained outstanding as of March 1995.
The State ended the 1992-93 fiscal year with a $113.5 million General Fund
operating surplus and a $19.7 million General Fund surplus for the 1993-94
fiscal year. The estimated surplus at June 1995 for the General Fund is $74.5
million, and the estimated surplus for the Transportation Fund is $57.9
million.
The State, its officers and employees are defendants in numerous lawsuits.
According to the State Attorney General's Office, an adverse decision in any
of the cases summarized herein could materially affect the State's financial
position: (i) an action to enforce the spending cap provision of the State's
constitution by seeking to require that the General Assembly define certain
terms used therein and to enjoin certain increases in "general budget
expenditures" until this is done; (ii) litigation on behalf of black and
hispanic school children in the City of Hartford seeking "integrated
education" within the greater Hartford metropolitan area; (iii) litigation
involving claims by Indian tribes to less than 1/10 of 1% of the State's land
area; (iv) litigation challenging the State's method of financing elementary
and secondary public schools on the grounds that it denies equal access to
education; (v) an action in which two retarded persons seek placement outside
a State hospital, new programs, and damages on behalf of themselves and all
mentally retarded patients at the hospital; (vi) litigation involving claims
for refunds of taxes by several cable television companies; (vii) an action on
behalf of all persons with retardation or traumatic brain injury, claiming
that their constitutional rights are violated by placement in State hospitals
alleged not to provide adequate treatment and training, and seeking placement
in community residential settings with appropriate support services; (viii) an
action by the Connecticut Hospital Association and 33 hospitals seeking to
require the State to reimburse hospitals for in-patient medical services on a
more favorable basis; (ix) a class action by the Connecticut Criminal Defense
Lawyers Association claiming a campaign of illegal surveillance activity and
seeking damages and injunctive relief; (x) two actions for monetary damages
brought by a former patient at a State mental hospital stemming from an
attempted suicide that left her brain-damaged; (xi) an action challenging the
validity of the State's imposition of surcharges on hospital charges to
finance certain uncompensated care costs incurred by hospitals; and (xii) an
action challenging the validity of the State's imposition of gross earnings
taxes on hospital revenues to finance certain uncompensated care costs.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $195,275,789. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$835,605 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $635,227 (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 $331,338 (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 $75,066
(equivalent to 0.33% (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
July 31, 1995, the Principal Underwriter paid sales commissions of $651,845 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 $1,395,069, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $621,000 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $7,583,000
(which amount was equivalent to 4.0% of the Fund's net assets on such date).
During the fiscal year ended July 31, 1995, the Fund paid service fee payments
under the Plan aggregating $245,950, of which $244,744 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $1,317.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $18,136 and the
Portfolio paid IBT $48,135.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $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, 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 May 1, 1992 through July 31, 1995
and for the one year period ended July 31, 1995.
<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 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 5/1/92* $1,000 $1,189.77 $1,159.86 18.98% 5.49% 15.99% 4.67%
1 Year
Ended
7/31/95 7/31/94 $1,000 $1,045.46 $ 995.86 4.55% 4.55% -0.41% -0.41%
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 July 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 6.95%,
assuming a combined federal and State tax rate of 34.11%.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 17, 1995) was 4.89%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.01%.
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 33.8%
Aa or AA 27.2
A 22.1
Baa or BBB 14.9
Ba or BB --
B --
Below B --
Not rated 2.0
----
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
Connecticut tax brackets applicable for 1995: 18.25% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 31.24% for single
filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 34.11% for single filers with taxable income from $56,551
to $117,950 and joint filers from $94,251 to $143,600; 38.88% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 42.32% 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 highest effective Connecticut State income tax rate is 4.5%. Tax
credits reduce the effective Connecticut tax rate for single filers with
taxable income up to $52,500 and joint filers up to $100,500. The combined
brackets use the highest effective Connecticut tax rate for single or joint
filers within each combined bracket. Taxpayers with taxable income within
these brackets may have a lower combined tax rate than indicated above. 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. 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
18.25% 31.24% 34.11% 38.88% 42.32%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.12 7.27 7.59 8.18 8.67
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.66 2.23 2.14 1.99 1.87
The Tax Free Yield Advantage
(38.88% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.99% After-tax yield
5.00% Tax free investment
8.18% 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: (1,263.60) NONE
After-tax
income: $1,986.40 $5,000.00
The 1995 combined tax bracket takes into account federal and Connecticut
State income taxes and uses the highest effective Connecticut tax rate for
single or joint filers (reduced by available tax credits). Assuming the
deductibility of State taxes on the federal return, the bracket is 38.88% 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 20.0% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. 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 Connecticut Tax Free Fund to EV Marathon
Connecticut Tax Free Fund on February 1, 1994 and to EV Marathon Connecticut
Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and Connecticut 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%.
A FEDERAL AND CONNECTICUT STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- --------------------- CT 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 18.25% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 56,551 - $117,950 $ 94,251 - $143,600 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$117,951 - $256,500 $143,601 - $256,500 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $256,500 Over $256,500 42.32 6.93 7.80 8.67 9.54 10.40 11.27 12.14
<FN>
<F1> Net amount subject to federal and Connecticut personal income tax after deductions and exemptions.
<F2> The Connecticut personal income tax rate is 4.5%. Tax credits reduce the effective Connecticut tax rate for single filers
with taxable income up to $52,500 and joint filers up to $100,500. The combined federal and Connecticut tax brackets are
calculated using the highest effective Connecticut tax rate for single or joint filers (reduced by available tax credits)
within each bracket. 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 Connecticut 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 Connecticut 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 Connecticut 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 Connecticut 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 Connecticut 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 MICHIGAN MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Michigan State and City income and single
business taxes in the form of an investment exempt from Michigan intangibles
tax. The Fund currently seeks to achieve its investment objective by investing
its assets in the Michigan Municipals Portoflio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund and the Portfolio will make such sales only
for the purpose of deferring realization of gain or loss for Federal income
tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may purchase call options on securities. The Fund
and Portfolio may purchase put options on municipal obligations only if, after
such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Michigan considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Michigan 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
Michigan issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The State's economy is overly dependent on the manufacturing sector, more
specifically the auto industry. Manufacturing accounts for 23% of total
employment as compared to the national average of 17%. The dependency on
manufacturing makes the State economy overly susceptible to economic
downturns. For the first time since 1966, the unemployment rate was below the
national average. An improving economy and successful cost containment have
enabled the State to improve its financial position. For 1994, the Budget
Stabilization Fund was $779 million and is projected to reach $1.1 billion for
1995. The Governor has proposed reducing individual and business income taxes.
For 1996, revenues are estimated to grow 4.7% while expenditures will grow by
a similar rate.
In March, 1994, Michigan voters approved a change in the tax system. The
most significant provisions were an increase in the sales tax rate from 4% to
6%, a reduction in the income tax rate from 4.6% to 4.4% and the creation of a
statewide property tax. These changes are expected to provide sufficient
revenues to offset the elimination of property taxes for school district
operating purposes. There can be no assurance that school districts will
receive sufficient revenues to be able to service any limited tax bonds they
may have outstanding and which may be held by the Portfolio.
Under the State Constitution, the Legislature is prohibited from raising
taxes if doing so would cause total State revenues (except Federal aid) to
exceed 10% of State personal income. The only exceptions to this revenue limit
are a majority approval of a referendum question or a specific emergency
declared by a two-thirds vote of the Legislature. However, this limit does not
apply to taxes imposed for the payment of principal and interest on bonds of
the State, if the bonds are approved by voters and authorized by a vote of
two-thirds of the members of each House of the Legislature. Local units of
government and local authorities are authorized to issue bonds and other
evidences of indebtedness in a variety of situations without the approval of
electors, but the ability of the obligor to levy taxes for the payment of such
obligations is subject to the foregoing limitations unless the obligations
were authorized before December 23, 1978 or approved by the electors. The
Constitution prohibits the State from reducing the proportion of total State
spending paid to all local units of government, taken as a group, below that
proportion in effect in the 1978-79 fiscal year. The State may not mandate new
or increased levels of services to be provided by local units without making
appropriations to cover any increased costs.
Under the State Constitution, the total amount of general ad valorem taxes
imposed on taxable property in any year cannot exceed certain millage
limitations specified by the Constitution, statute or charter. The
Constitution prohibits local units of government from levying any tax not
authorized by law or charter, or from increasing the rate of an existing tax
above the rate authorized by law or charter. The Constitution also contains
millage reduction provisions. Under such provisions, should the value of
taxable property (exclusive of new construction and improvements) increase at
a percentage greater than the percentage increase in the Consumer Price Index,
the maximum authorized tax rate would be reduced by a factor which would
result in the same maximum potential tax revenues to the local taxing unit as
if the valuation of taxable property (less new construction and improvements)
had grown only at the Consumer Price Index rate instead of at the higher
actual growth rate. Thus, if taxable property values rise faster than consumer
prices, the maximum authorized tax rate would be increased at the Consumer
Price Index rate. Conversely, if taxable property values rise slower than
consumer prices, tax rates may be raised accordingly, but never higher than
the rate authorized on December 23, 1978, without elector approval.
The ability of the State to pay the principal and interest on its general
obligation bonds may be affected by the limitations described above.
Similarly, the ability of local units to levy taxes to pay the principal of
and interest on their general obligations is subject to the constitutional,
statutory and charter limits described below.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $191,262,981. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$856,258 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $721,041 (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 $443,391 (equivalent to 0.42%
(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 $158,554
(equivalent to 0.40% (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
July 31, 1995, the Principal Underwriter paid sales commissions of $351,608 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 $1,413,428, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $704,000 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $6,378,000
(which amount was equivalent to 3.4% of the Fund's net assets on such date).
For the fiscal year ended July 31, 1995, the Fund paid service fee payments
under the Plan aggregating $270,112, of which $269,241 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $1,970.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $2,388 and the
Portfolio paid IBT $1,944.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $2,198(2) $135,000(4)
Samuel L. Hayes, III ........ 643 2,219(3) 150,000(5)
Norton H. Reamer ............ 628 2,229 135,000
John L. Thorndike ........... 637 2,325 140,000
Jack L. Treynor ............. 686 2,300 140,000
- ----------
(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, 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 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 at 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 April 19, 1991 through July 31,
1995 and for the one-year period ended July 31, 1995.
<PAGE>
<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<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F3> 4/19/91<F1> $1,000 $1,318.06 $1,298.06 31.81% 6.65% 29.81% 6.27%
1 Year
Ended
7/31/95 7/31/94 $1,000 $1,056.07 $1,006.07 5.61% 5.61% 0.61% 0.61%
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 April 19, 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 July 31, 1995, the yield of the Fund was
4.43%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.43% would be 6.98%,
assuming a combined federal and State tax rate of 36.54%.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 17, 1995) was 4.83%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.94%.
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 48.6%
Aa or AA 9.9
A 25.1
Baa or BBB 13.3
Ba or BB --
B --
Below B --
Not rated 3.1
-----
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 federal and Michigan
income tax brackets applicable for 1995: 22.23% for single filers with taxable
income up to $23,350 and joint filers up to $39,000; 34.12% for single filers
with taxable income from $23,351 to $56,550 and joint filers from $39,001 to
$94,250; 36.87% for single filers with taxable income from $56,551 to $117,950
and joint filers from $94,251 to $143,600; 41.44% for single filers with
taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 44.73% 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 tax brackets include a Michigan state income tax rate of 4.4%, a
Michigan city income tax rate of 1%, and a Michigan intangibles tax rate of
3.5%. The combined brackets are not simply the sum of each of the taxes, as
they assume that state and city taxes are deducted on the federal income tax
return, reducing the effective combined tax brackets. Bank deposits are not
subject to the Michigan intangibles tax. The combined tax brackets used in
calculating the after-tax yields of the certificate of deposit were 19.25%,
31.60%, 34.45%, 39.20% and 42.62%, over the same 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 advisers for more information. These
illustrations are not meant to imply or predict any future rate of return for
the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
<S> <C> <C> <C> <C> <C>
22.23% 34.12% 36.87% 41.44% 44.73%
------ ------ ----------- ------ ------
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.43 7.59 7.92 8.54 9.05
TAX BRACKET<F1>
19.25% 31.60% 34.45% 39.20% 42.62%
------ ------ ----------- ------ ------
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
<FN>
- ----------
<F1> CD interest is not subject to intangibles tax. Accordingly, the combined tax brackets applicable to after-tax yields are
19.25%, 31.60%, 34.45%, 39.20% and 42.62%.
</TABLE>
The Tax Free Yield Advantage
(41.44% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.98% After-tax yield
5.00% Tax free investment
8.54% 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: (1,346.80) NONE
After-tax income: $1,903.20 $5,000.00
The 1995 combined tax bracket takes into account federal and Michigan
State income taxes and a city income tax rate of 1% as well as the Michigan
intangibles tax. Based on an investment yielding 5.0%, and assuming the
deductibility of State and City taxes on the federal return, the bracket is
41.44% 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 (Sources: The
Wall Street Journal and Eaton Vance Management). CD interest is not subject to
Michigan intangibles tax. Accordingly, the combined tax bracket applicable to
the after-tax CD yield is 39.20%. 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 26.18% 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% of 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 Michigan Tax Free Fund to EV Marathon
Michigan Tax Free Fund on February 1, 1994 and to EV Marathon Michigan
Municipals Fund on December 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, Michigan State income tax, Michigan State intangibles tax and Michigan
City 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 MICHIGAN STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------- ------------ MI 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 21.82% 5.12% 5.76% 6.40% 7.04% 7.67% 8.31% 8.95%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.78 6.04 6.80 7.55 8.31 9.06 9.82 10.57
$ 56,551 - $117,950 $ 94,251 - $143,600 36.54 6.30 7.09 7.88 8.67 9.45 10.24 11.03
$117,951 - $256,500 $143,601 - $256,500 41.14 6.80 7.64 8.49 9.34 10.19 11.04 11.89
Over $256,500 Over $256,500 44.45 7.20 8.10 9.00 9.90 10.80 11.70 12.60
<FN>
<F1> Net amount subject to federal and Michigan personal income tax after deductions and exemptions.
<F2> The combined tax rates include a Michigan tax rate of 4.4%, Michigan City income tax rate of 1% (which may vary by city), and
a Michigan intangibles tax rate of 2.625%, and assume that Michigan 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 Michigan 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 Michigan 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 Michigan 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 Michigan 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 MINNESOTA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Minnesota State income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Minnesota Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may purchase call options on securities. The Fund
and Portfolio may purchase put options on municipal obligations only if, after
such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Minnesota considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Minnesota 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
Minnesota issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The State's economic downturn has been less severe than that of the
nation, as evidenced by the State's employment growth in the early 1990s. The
State of Minnesota has no obligation to pay any bonds of its political or
governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the Portfolio are
expected to be obligations other than general obligations of the State of
Minnesota itself, there can be no assurance that the same factors that
adversely affect the economy of the State generally will not also affect
adversely the market value or marketability of such other obligations, or the
ability of the obligors to pay the principal of or interest on such
obligations.
At the local level, the property tax base has recovered after its growth
was slowed in many communities in the early 1990s by an overcapacity in
certain segments of the commercial real estate market. Local finances are also
affected by the amount of state aid that is made available. Further, various
of the issuers within the State of Minnesota, as well as the State of
Minnesota itself, whose securities may be purchased by the Portfolio, may now
or in the future be subject to lawsuits involving material amounts. It is
impossible to predict the outcome of these lawsuits. Any losses with respect
to these lawsuits may have an adverse impact on the ability of these issuers
to meet their obligations.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $82,967,696. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$310,489 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $228,154 (equivalent to 0.36% (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 $107,030 (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, the Fund paid Eaton Vance advisory fees of $24,114
(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 its fee in the amount of $6,138 during this 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
July 31, 1995, the Principal Underwriter paid sales commissions of $301,355 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 $588,748, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $351,000 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $3,041,000
(which amount was equivalent to 3.8% of the Fund's net assets on such date).
During the fiscal year ended July 31, 1995, the Fund paid service fee payments
under the Plan aggregating $103,716, of which $103,646 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $1,157.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $3,549 and the
Portfolio paid IBT $20,399.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 .... 321 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.
<PAGE>
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 29, 1991 through July 31,
1995 and for the one-year period ended July 31, 1995.
<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<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2>-------------------------- --------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F3> 7/29/91<F1> $1,000 $1,246.31 $1,226.41 24.63% 5.64% 22.64% 5.22%
1 Year
Ended
7/31/95 7/31/94 $1,000 $1,044.13 $ 994.58 4.41% 4.41% -0.54% -0.54%
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 July 29, 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 July 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 7.25%,
assuming a combined federal and State tax rate of 36.87%.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 17, 1995) was 4.89%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.01%.
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 46.3%
Aa or AA 31.6
A 10.7
Baa or BBB 10.2
Ba or BB --
B --
Below B --
Not rated 1.2
-----
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 are the
federal and Minnesota 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; 34.12% for single filers with taxable income from $23,351 to $56,550
and joint filers from $39,001 to $94,250; 36.87% for single filers with
taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 41.44% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 44.73% 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 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 advisers for more information. These
illustrations are not meant to imply or predict any future rate of return for
the Fund.
<TABLE>
<CAPTION>
TAX BRACKET
21.80% 34.12% 36.87% 41.44% 44.73%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ............. 6.39 7.59 7.92 8.54 9.05
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.54 2.14 2.05 1.90 1.80
</TABLE>
The Tax Free Yield Advantage
(41.44% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.90% After-tax yield
5.00% Tax free investment
8.54% 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: (1,346.80) NONE
After-tax
income: $1,903.20 $5,000.00
The 1995 combined tax bracket takes into account federal and the highest
Minnesota State income taxes. Assuming the deductibility of State taxes on the
federal return, the bracket is 41.44% 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 further 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 5.8% 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 Minnesota Tax Free Fund to EV Marathon
Minnesota Tax Free Fund on February 1, 1994 and to EV Marathon Minnesota
Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and regular Minnesota State personal 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 MINNESOTA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- --------------------- MN 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 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.12 6.07 6.83 7.59 8.35 9.11 9.87 10.63
$ 56,551 - $117,950 $ 94,251 - $143,600 36.87 6.34 7.13 7.92 8.71 9.50 10.30 11.09
$117,951 - $256,500 $143,601 - $256,500 41.44 6.83 7.68 8.54 9.39 10.25 11.10 11.95
Over $256,500 Over $256,500 44.73 7.24 8.14 9.05 9.95 10.86 11.76 12.67
<FN>
<F1> Net amount subject to federal and Minnesota personal income tax after deductions and exemptions.
<F2> The combined federal and Minnesota tax brackets are calculated using the highest Minnesota 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 Minnesota 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 Minnesota 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 Minnesota 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 Minnesota 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 Minnesota 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 Minnesota personal income tax, is treated as a
tax preference item which could subject the recipient to the federal and
Minnesota alternative minimum taxes. The illustrations assume that the federal
and Minnesota 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>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NEW JERSEY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New Jersey State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the New Jersey Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
As a matter of nonfundamental policy, neither the Fund nor the Portfolio
may 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; provided, however, that the Fund
may invest without limitation in the Portfolio or in another investment
company with substantially the same investment objective. Neither the Fund nor
the Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may purchase call options on securities. The Fund
and Portfolio may purchase put options on municipal obligations only if, after
such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain New Jersey considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New Jersey issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of New Jersey issuers. Neither the Trust nor the
Portfolio has independently verified this information.
New Jersey has a well diversified economy and high wealth levels. Per
capita income ranks as one of the highest in the nation. The State's economy
benefits from its proximity to New York and other major eastern seaboard
cities. New Jersey's economy, like most states, suffered during the recent
recession with unemployment increasing and surpassing the national average.
New Jersey's adjusted unemployment rate for May 1995 was 6.5% compared to 5.7%
nationally.
As of the date of this Statement of Additional Information, New Jersey's
general obligation debt was rated Aa1, AAPL and AAPL, by Moody's, S&P and
Fitch, respectively. As a result of New Jersey's fiscal weakness, evidenced by
declining fund balances, S&P placed the State's general obligation debt and
related agency and lease obligations on CreditWatch with negative implications
in June 1991. In July, 1991 S&P downgraded the State's general obligation debt
from AAA to AA+. As part of this action, numerous agency and lease obligation
debts were also downgraded accordingly. These downgrades did not affect state
university and college ratings. In August 1992, Moody's downgraded New Jersey
to Aa1 from Aaa due to the use of one-time revenue items, revenue shortfalls
and ongoing operating deficits. S&P affirmed their AAPL rating for the State,
but retained the negative outlook. On December 16, 1992, Fitch lowered their
rating on the State to AAPL from AAA. The rating action was due to the State's
decision, with the most recent bond issuance, to defer debt service in the
immediate future in order to provide for unmet capital needs, while increasing
debt service requirements in future years when additional resources may or may
not be available.
As part of the 1992-1993 budget, the Legislature cut approximately $1
billion in spending from the Governor's budget, including cutbacks in both the
State's homestead rebate and general assistance programs. To cover the
shortfall resulting from the cutbacks, the State employee pension fund was
revalued, allowing the State to reduce its contribution, and a surplus in the
school aid funds was applied to the General Fund. The State ended fiscal 1993
with an $855 million surplus, approximately half of which was used in the 1994
budget. 1994 had an appropriation for all funds of $15.7 billion, up 4.8% from
fiscal 1993 revised appropriations of $14.7 billion. Both years benefited from
$412 million in nonrecurring revenues from retroactive Federal Medicaid
payments. After the Legislature reduced the Governor's fiscal 1994 requests by
$182 million, about half the $855 million fiscal 1993 total surplus was used
for fiscal 1994, with a June 30, 1994 forecast of $416 million -- $110 million
allocated to the General Fund and over $305 million to rainy day and taxpayer
relief funds.
In 1994, New Jersey adopted a 5% personal income tax cut retroactive to
January 1, 1994. In 1995, New Jersey adopted a 10% personal income tax cut
retroactive to January 1, 1995. On June 26, 1995, the New Jersey State
Legislature passed an additional 15% reduction to take effect January 1, 1996.
State officials estimate the revenue loss resulting from these tax cuts at
over $1 billion for fiscal 1996. To accommodate the tax cut, the fiscal 1996
budget would rely on non-recurring revenues and the use of prior years'
surplus. Furthermore, a major focus of the spending reductions has been
employer contributions to retiree health care and pension systems which were
cut by over $863 million in fiscal 1995. There can be no assurance that the
tax cuts will not have an adverse impact on the State's finances and the
demand for municipal bonds in the State.
General obligation bonds of New Jersey are the primary method for New
Jersey financing of capital projects. These bonds are backed by the full faith
and credit of New Jersey. New Jersey tax revenues and certain other fees are
pledged to meet the principal and interest payments required to fully pay the
debt. No general obligation debt can be issued by New Jersey without prior
voter approval, except that, pursuant to a constitutional amendment, no voter
approval is required for any law authorizing the creation of a debt for the
purpose of refinancing all or a portion of the outstanding debt of New Jersey,
so long as such law requires that the refinancing provided debt service
savings. The New Jersey Constitution also provides that no voter approval is
required for debt issued for purposes of war, to repel invasion, to suppress
insurrection or to meet an emergency caused by disaster or act of God. Capital
construction can also be funded by appropriation of current revenues on a pay-
as-you-go basis. All appropriations for capital projects and all proposals for
State bond authorizations are subject to the review and recommendation of the
New Jersey Commission on Capital Budgeting and Planning.
Other State-related obligations include those created pursuant to the New
Jersey Building Authority Act, which has the power to construct facilities for
leasing to the State. The rental for such buildings is equal to the debt
service relating thereto plus payments in lieu of real estate taxes.
Legislation provides for future appropriations for State aid to local school
districts equal to debt service on a maximum principal amount of $280,000,000
of bonds issued by such local school districts for construction and renovation
of school facilities and for State aid to counties equal to debt service on up
to $80,000,000 of bonds issued by counties for construction of county college
facilities.
The authorizing legislation for various State entities provides for
specific budgetary procedures with respect to certain obligations issued by
such entities. Bonds issued pursuant to authorizing legislation of this type
are sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible State entities. Currently, there are two such entities available for
State appropriations to meet moral obligations. The New Jersey Housing and
Mortgage Finance Agency has not had a deficiency in a debt service reserve
which required New Jersey to appropriate funds. It is anticipated that the
agency's revenue will continue to be sufficient to cover debt service on its
bonds. The State provides the South Jersey Port Corporation with funds to
cover all debt service and property tax requirements, when earned revenues are
anticipated to be insufficient to cover these obligations. In the past,
anticipated revenues have, in some cases, been insufficient to cover debt
service and/or insufficient to cover all property tax requirements. These are
numerous other State-created entities with outstanding debt. This debt is
supported by revenues derived from or assets of the various projects financed
by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties
and municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may
be issued and requiring their repayment within three months of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance
of bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the
Local Finance Board. State law also authorizes State officials to supervise
fiscal administration in any municipality facing financial difficulties.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $411,038,422. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$1,944,340 (equivalent to 0.47% of the Portfolio's average daily net assets
for such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $1,609,137 (equivalent to 0.46% (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 $1,012,430
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, the Fund paid Eaton Vance advisory fees of $381,309
(equivalent to 0.45% (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
July 31, 1995, the Principal Underwriter paid sales commissions of $1,198,023
to Authorized Firms on sales of Fund shares. During the same period, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $3,055,813, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $1,772,000 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $13,741,000
(which amount was equivalent to 3.4% of the Fund's net assets on such date).
During the fiscal year ended July 31, 1995, the Fund paid service fee payments
under the Plan aggregating $576,534, of which $574,374 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $4,255.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $20,355 and the
Portfolio paid IBT $91,170.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $3,594(2) $135,000(4)
Samuel L. Hayes, III ...... 643 3,569(3) 150,000(5)
Norton H. Reamer .......... 628 3,545 135,000
John L. Thorndike ......... 637 3,661 140,000
Jack L. Treynor ........... 686 3,742 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $889 of deferred compensation.
(3) Includes $1,086 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
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 January 8, 1991 through July 31,
1995 and for the one year period ended July 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE DE- MENT AFTER DE- DEDUCTING DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2> -------------------------- -------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F3> 1/8/91<F1> $1,000 $1,360.21 $1,340.21 36.02% 6.98% 34.02% 6.63%
1 Year
Ended
7/31/95 7/31/94 $1,000 $1,050.41 $1,000.65 5.04% 5.04% 0.06% 0.06%
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 January 8, 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 July 31, 1995, the yield of the Fund was
4.78%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.78% would be 7.42%,
assuming a combined federal and State tax rate of 35.54%.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 17, 1995) was 5.02%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.14%.
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 25.3%
Aa or AA 19.2
A 21.3
Baa or BBB 13.2
Ba or BB 7.0
B --
Below B --
Not rated 14.0
-----
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 federal
and New Jersey State income tax brackets applicable for 1995: 16.81% for
single filers with taxable income up to $23,350 and joint filers up to
$39,000; 32.33% for single filers with taxable income from $23,351 to $56,550
and joint filers from $39,001 to $94,250; 35.54% for single filers with
taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 40.21% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 43.57% 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 are calculated using the
highest New Jersey State rate applicable at the upper portion of the brackets
and assume that New Jersey taxes are deducted on the federal income tax
return. 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. See your tax adviser for additional information.
<TABLE>
<CAPTION>
TAX BRACKET
16.81% 32.33% 35.54% 40.21% 43.57%
------ ------ ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ................................. 6.01 7.39 7.76 8.36 8.86
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.70 2.20 2.09 1.94 1.83
</TABLE>
The Tax Free Yield Advantage
(40.21% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.94% After-tax yield
5.00% Tax free investment
8.36% 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: (1,306.83) NONE
After-tax income: $1,943.17 $5,000.00
The 1995 combined tax bracket takes into account federal and New Jersey
State income taxes. Assuming the deductibility of state taxes on the federal
return, the bracket is 40.21% 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 10.63% 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 owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from Eaton Vance New Jersey Tax Free Fund to EV Marathon New
Jersey Tax Free Fund on February 1, 1994. The Fund changed its name from EV
Marathon New Jersey Tax Free Fund to EV Marathon New Jersey Municipals Fund on
December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular federal income
tax and New Jersey 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 NEW JERSEY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- ------------------- NJ STATE ------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------- ----------------- ------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 16.81% 4.81% 5.41% 6.01% 6.61% 7.21% 7.81% 8.41%
$ 23,351-$ 56,500 $ 39,001-$ 94,250 32.33% 5.91 6.65 7.39 8.13 8.87 9.61 10.34
$ 56,551-$117,950 $ 94,251-$143,600 35.54% 6.21 6.98 7.76 8.53 9.31 10.08 10.86
$117,951-$256,500 $143,601-$256,500 40.21% 6.69 7.53 8.36 9.20 10.04 10.87 11.71
Over $256,500 Over $256,500 43.57% 7.09 7.98 8.86 9.75 10.63 11.52 12.41
* Net amount subject to federal and New Jersey personal income tax after eductions and exemptions.
+ The combined tax rates for the tax brackets shown in the left hand columns are calculated using the highest New Jersey State
rate applicable at the upper portion of these brackets and assume the taxpayers deduct New Jersey State income taxes paid on
their federal income tax returns. An investor with taxable income below the highest dollar amount in such tax brackets may have
a lower combined tax rate than the combined rates shown. The taxable equivalent yields for such an investor may be lower than
indicated above. Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket
and higher taxable equivalent yield then 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 New Jersey 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 Marathon New Jersey Municipals
Fund will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and New Jersey personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for New Jersey 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 PENNSYLVANIA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Pennsylvania State and local
income taxes in the form of an investment exempt from Pennsylvania personal
property taxes. The Fund currently seeks to achieve its investment objective
by investing its assets in the Pennsylvania Municipals Portfolio (the
"Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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, determine to be liquid, based upon the trading markets for the
specific security; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio or in another
investment company with substantially the same investment objective. Neither
the Fund nor the Portfolio may purchase call options on securities. The Fund
and Portfolio may purchase put options on municipal obligations only if, after
such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no
longer in the best interests of the Fund and its shareholders, it will revoke
the commitment by terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Pennsylvania considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Pennsylvania 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 Pennsylvania issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Pennsylvania continues, however, to have a greater percentage of
its workers employed in manufacturing than the national average, leaving the
economy somewhat cyclical and vulnerable to recessionary forces. During 1993,
manufacturing accounted for 18% of employment. As of May 1995, the unadjusted
unemployment rate for Pennsylvania and the United States was 5.7%. Per capita
income in Pennsylvania for 1993 of $21,352 was higher than the per capita
income of the United States of $20,817.
REVENUES AND EXPENDITURES. Pennsylvania utilizes the fund method of
accounting. The General Fund, the State's largest fund, receives all tax
receipts, revenues, federal grants and reimbursements that are not specified
by law to be deposited elsewhere. Debt service on all obligations, except
those issued for highway purposes or for the benefit of other special revenue
funds, is payable from the General Fund. The General Fund closed fiscal years
ended June 30, 1992, June 30, 1993 and June 30, 1994 with fund balances of
$87,455, $698,945 and $892,940, respectively.
The Governor's fiscal year 1996 budget contains no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending will
increase 2.3% over fiscal year 1995 appropriations. The fiscal year 1996
budget included tax reductions of approximately $214.8 million and projects a
$3.2 million fiscal year-end unappropriated surplus. The state Tax
Stabilization Fund had a balance at March 31, 1995 of $65.3 million.
The Pennsylvania Constitution requires all proceeds of motor fuels taxes,
vehicle registration fees, license taxes, operators' license fees and other
excise taxes imposed on products used in motor transportation to be used
exclusively for construction, reconstruction, maintenance and repair of and
safety on highways and bridges and for the payment of debt service on
obligations incurred for such purposes. The Motor License Fund is the fund
through which such revenues are accounted for and expended.
The Motor License Fund ended fiscal year ended June 30, 1994 with an
unappropriated balance of $107.5 million on a budgetary basis. State revenue
collections for fiscal year 1995 are projected to increase slightly from
fiscal 1994. The budget for fiscal year 1996 includes a 2.3% increase in
appropriations from the prior year. The unappropriated balance of the General
Fund at June 30, 1995 is projected to be approximately $3 million on a
budgetary basis.
PENNSYLVANIA DEBT. The current Constitutional provisions pertaining to the
Pennsylvania debt permit the issuance of the following types of debt: (i) debt
to suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years (this debt need not be approved by the electorate)
and (iv) tax anticipation notes payable in the fiscal year of issuance. All
debt except tax anticipation notes must be amortized in substantial and
regular amounts.
Total outstanding general obligation debt totalled $5,075.8 million as of
June 30, 1994, an increase of $37.0 million from June 30, 1993. In its current
debt financing plans, Pennsylvania is emphasizing infrastructure investment to
improve and rehabilitate existing capital facilities, such as water supply
systems, and to construct new facilities, such as flood control systems and
public buildings.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, which must mature
within the fiscal year of issuance. The principal amount issued, when added to
that outstanding, may not exceed in the aggregate 20% of the revenues
estimated to accrue to the appropriate fund in the fiscal year. The State is
not permitted to fund deficits between fiscal years with any form of debt. All
year end deficit balances must be funded within the succeeding fiscal year's
budget.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years.
STATE-RELATED OBLIGATIONS. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of or revenues derived from the various
projects financed; it is not an obligation of the State. Some of these
agencies, however, are indirectly dependent on state appropriations. State-
related agencies and their outstanding debt as of December 31, 1994 include
the Delaware River Joint Toll Bridge Commission ($56.3 million), the Delaware
River Port Authority ($233.9 million), the Pennsylvania Economic Development
Financing Authority ($659.9 million), the Pennsylvania Energy Development
Authority ($162.1 million), the Pennsylvania Higher Education Assistance
Agency ($1,283.8 million), the Pennsylvania Higher Education Facilities
Authority ($1,965.8 million), the Pennsylvania Industrial Development
Authority ($357.3 million), the Pennsylvania Infrastructure Investment
Authority ($227.5 million), the Pennsylvania Turnpike Commission ($1,252.6
million), the Philadelphia Regional Port Authority ($63.9 million) and the
State Public School Building Authority ($286.8 million).
The only obligations of state-created agencies in Pennsylvania which bear
a moral obligation of the state are those issued by the Pennsylvania Housing
Finance Agency, a state-created agency which provides housing for lower and
moderate income families in the state, which had $2,300 million of bonds and
notes outstanding, and the Hospitals and Higher Education Facilities Authority
of Philadelphia which issued $21.1 million in bonds in 1993.
LOCAL GOVERNMENT DEBT. Local government in Pennsylvania consists of numerous
individual units. Each unit is distinct and independent of other local units,
although they may overlap geographically.
There is extensive general legislation applying to local government. For
example, the Local Government Unit Debt Act provides for uniform debt limits
for local government units, including municipalities and school districts, and
prescribes methods of incurring, evidencing, securing and collecting debt.
Under the Local Government Unit Debt Act, the ability of Pennsylvania
municipalities and school districts to engage in general obligation borrowing
without electoral approval is generally limited by their recent revenue
collection experience. Generally such subdivisions can levy real property
taxes unlimited as to rate or amount to pay debt service on general obligation
borrowings.
Municipalities may also issue revenue obligations without limit and
without affecting their general obligation borrowing capacity if the
obligations are projected to be paid solely from project revenues.
Municipal authorities and industrial development authorities are
widespread in Pennsylvania. An authority is organized by a municipality acting
singly or jointly with another municipality and is governed by a board
appointed by the governing unit of the creating municipality or
municipalities. Typically, authorities are established to acquire, own and
lease or operate one or more projects and to borrow money and issue revenue
bonds to finance them.
As of the date of this Statement of Additional Information, the City of
Philadelphia's general obligations are rated Ba, B and BB, by Moody's, S&P and
Fitch, respectively.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $502,250,304. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$2,416,419 (equivalent to 0.48% of the Portfolio's average daily net assets
for such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $2,054,802 (equivalent to 0.46% (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 $1,300,484
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained
Eaton Vance as its investment adviser. For the period from October 1, 1992 to
February 1, 1993, the Fund paid Eaton Vance advisory fees of $476,198
(equivalent to 0.46% (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
July 31, 1995, the Principal Underwriter paid sales commissions of $928,046 to
Authorized Firms on sales of Fund shares. During the same period, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $3,771,247, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $2,034,000 were imposed on early redeeming shareholders and paid
to the Principal Underwriter to reduce Uncovered Distribution Charges. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $17,253,000
(which amount was equivalent to 3.5% of the Fund's net assets on such date).
During the fiscal year ended July 31, 1995, the Fund paid service fee payments
under the Plan aggregating $751,526, of which $749,202 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $5,495.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund and the Portfolio paid
no custodian fees to IBT.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 $3,994(2) $135,000(4)
Samuel L. Hayes, III ...... 643 3,955(3) 150,000(5)
Norton H. Reamer .......... 628 3,922 135,000
John L. Thorndike ......... 637 4,043 140,000
Jack L. Treynor ........... 686 4,154 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $988 of deferred compensation.
(3) Includes $1,209 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) 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 January 8, 1991 through July 31,
1995 and for the one year period ended July 31, 1995.
<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**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 1/8/91* $1,000 $1,354.80 $1,334.80 35.48% 6.89% 33.48% 6.54%
1 Year
Ended
7/31/95 7/31/94 $1,000 $1,052.39 $1,002.49 5.24% 5.24% 0.25% 0.25%
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>
* Investment operations began on January 8, 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 July 31, 1995, the yield of the Fund was
4.73%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.73% would be 7.72%,
assuming a combined federal and State tax rate of 38.76%.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 17, 1995) was 4.94%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.05%.
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 33.9%
Aa or AA 13.2
A 28.5
Baa or BBB 15.7
Ba or BB 0.3
B --
Below B --
Not rated 8.4
------
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 Pennsylvania income tax brackets for 1995. The tax brackets for
Pennsylvania residents subject to Pennsylvania income tax and Pennsylvania
county personal property tax are 24.18% for single filers with taxable income
up to $23,350 and joint filers up to $39,000, 35.78% for single filers with
taxable income from $23,351 to $56,550 and joint filers from $39,001 to
$94,250, 38.45% for single filers with taxable income from $56,551 to $117,950
and joint filers from $94,251 to $143,600; 42.91% for single filers with
taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 46.12% for single and joint filers with taxable income over
$256,500. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6% over the same ranges of income.
These brackets reflect the Pennsylvania county personal property tax ($.40 per
$100 in value) expressed as a percentage of an investment yielding 5.0%, as
well as Pennsylvania income tax (2.80%) and federal income tax. The tax
brackets used in calculating the after-tax yield of the certificate of deposit
are 17.38%, 30.02%, 32.93%, 37.79% and 41.29% and do not reflect the
Pennsylvania county personal property tax as bank deposits are generally
exempt from such tax.
The tax brackets used in calculating the taxable equivalent of a
hypothetical 5% yield of the Fund for individuals who reside in Philadelphia
are 28.40%, 39.35%, 41.87%, 46.09% and 49.12%. These brackets reflect the
Pennsylvania county personal property tax ($.40 per $100 in value) expressed
as a percentage of an investment yielding 5.0%, the City of Philadelphia
school district investment income tax of 4.96%, and federal and Pennsylvania
state income taxes. The tax brackets used in calculating the after-tax yield
of the certificate of deposit are 17.38%, 30.02%, 32.93%, 37.79% and 41.29%
over the same ranges of income. Bank deposits are generally exempt from the
Pennsylvania county personal property tax and Philadelphia school district
income tax.
All of the above tax brackets assume that state and local taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize, or who are subject to phaseout of personal exemptions or limitation
on the deductibility of itemized deductions may have higher tax brackets than
indicated above. Investors should consult with their tax advisers for more
information prior to investing in the Fund.
For taxpayers subject to Philadelphia income tax:
TAX BRACKET
28.40% 39.35% 41.87% 46.09% 49.12%
----------------------------------------------------
Tax free yield ....... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ... 6.98 8.24 8.60 9.27 9.83
TAX BRACKET*
17.38% 30.02% 32.93% 37.79% 41.29%
----------------------------------------------------
Certificates of
deposit:
Yield .............. 3.25 3.25 3.25 3.25 3.25
After-tax yield .... 2.69 2.27 2.18 2.02 1.91
For taxpayers not subject to Philadelphia income tax:
TAX BRACKET
24.18% 35.78% 38.45% 42.91% 46.12%
----------------------------------------------------
Tax free yield ....... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ... 6.59 7.79 8.12 8.76 9.28
TAX BRACKET*
17.38% 30.02% 32.93% 37.79% 41.29%
----------------------------------------------------
Certificates of
deposit:
Yield .............. 3.25 3.25 3.25 3.25 3.25
After-tax yield .... 2.69 2.27 2.18 2.02 1.91
*Bank CDs are exempt from the Pennsylvania county personal property tax and
Philadelphia school district income tax. Accordingly, the combined tax
brackets applicable to after-tax yields are 17.38%, 30.02%, 32.93%, 37.79%
and 41.29%.
The following are illustrations of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 5.0%. The illustrations also quantify the federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a hypothetical tax free investment yielding 5.0%,
and compare the after-tax return of such investments. The charts are based on
3-month bank CDs (Sources: The Wall Street Journal and Eaton Vance
Management). (The tax bracket used in calculating the CD after-tax yield is
37.79%, as bank CDs are generally exempt from Pennsylvania county personal
property tax and Philadelphia school district income tax.) These illustations
are not meant to imply or predict any future rate of return for the Fund. See
your financial adviser for the Fund's current yield and actual CD rates.
The Tax Free Yield Advantage: Philadelphia Residents
(46.09% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
5.00% Tax free investment
9.27% 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: (1,497.93) NONE
After-tax
income: $1,752.07 $5,000.00
The Tax Free Yield Advantage: Excluding Philadelphia Residents
(42.91% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
5.00% Tax free investment
8.76% 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: (1,394.58) NONE
After-tax
income: $1,855.42 $5,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields may be included in advertisements and other material
supplied to present and prospective shareholders.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ was the record owner of approximately 14.04% 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 Pennsylvania Tax Free Fund to EV Marathon
Pennsylvania Tax Free Fund on February 1, 1994. The Fund changed its name from
EV Marathon Pennsylvania Tax Free Fund to EV Marathon Pennsylvania Municipals
Fund on December 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 Pennsylvania State and local tax laws in effect for 1995. It gives the
approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding 6%.
<TABLE>
<CAPTION>
TAXABLE YIELD NEEDED TO MATCH 6% FREE OF
---------------------------------------------------------
FEDERAL, STATE, FEDERAL, STATE,
1994 TAXABLE INCOME FEDERAL FEDERAL, STATE COUNTY AND COUNTY AND
- ----------------------------------------------- FEDERAL STATE AND STATE AND COUNTY PHILADELPHIA PITTSBURGH
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES TAXES TAXES (1) TAXES (2)
- ------------------------ --------------------- ------------ --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 2.80% 7.26% 7.80% 8.25% 9.14%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 28.00 2.80 8.57 9.20 9.74 10.79
$ 56,551 - $117,950 $ 94,251 - $143,600 31.00 2.80 8.95 9.60 10.16 11.26
$117,951 - $256,500 $143,601 - $256,500 36.00 2.80 9.65 10.36 10.96 12.14
Over $256,500 Over $256,500 39.60 2.80 10.22 10.97 11.61 12.87
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Equivalent yields are based on a fixed $1,000 investment with all taxes
deducted from income. Included in all areas are the effects of: federal income
tax minus savings from itemizing state and local taxes, a 2.80% Pennsylvania
income tax and a 4 mill county personal property tax. (1) Philadelphia
equivalent yields also include the 4.96% school income tax. (2) Pittsburgh
equivalent yields also include 4 mill city and 4 mill school property taxes.
While it is expected that the Portfolio will invest primarily in obligations
exempt from taxes, other income received by the Fund may be taxable. Yields
shown are for illustration purposes only and are not meant to represent the
Fund's actual yield.
Note: The above-indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions
(including Pennsylvania State and local taxes) for taxpayers with Adjusted
Gross Income in excess of $114,700. The tax brackets and taxable equivalent
yields 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 federal
tax brackets and equivalent taxable yields of such taxpayers will be higher
than those indicated above. In addition, the equivalent taxable yields for
investors who do not itemize will be higher than indicated above.
Of course, no assurance can be given that EV Marathon Pennsylvania 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 Pennsylvania State and local
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. 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 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 TEXAS MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income taxes. The Fund currently seeks to achieve its investment
objective by investing its assets in the Texas Municipals Portfolio (the
"Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value), is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933, or participate on a joint or a joint and
several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund permitted to incur. The Fund will not purchase
securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis is
not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate, (including limited partnership interests,
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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures contracts on securities and on securities, economic and
other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as principal;
however, any such person or concerns may be employed as a broker upon customary
terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have also adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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; provided, however, that the Fund may invest without limitation in the
Portfolio or in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may purchase securities
of unseasoned issuers, including their predecessors, which have been in
operation for less than three years, if by reason thereof the value of its
aggregate investment in such class of securities will exceed 5% of its total
assets, provided that the issuers of securities rated by Moody's, S&P, Fitch or
any other nationally recognized rating service shall not be considered
"unseasoned"; provided, however, that the Fund may invest without limitation in
the Portfolio or in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may engage in options,
futures or forward transactions if more than 5% of its net assets, as measured
by the aggregate of the premiums paid by the Fund or the Portfolio, would be so
invested. The Fund and Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio may invest in warrants,
valued at the lower of cost or market, exceeding 5% of the value of its net
assets. Included within that amount, but not to exceed 2% of the value of its
net assets, may be warrants which are not listed on the New York or American
Stock Exchange. Warrants acquired by the Fund or the Portfolio in units or
attached to securities may be deemed to be without value. Neither the Fund nor
the Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Texas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Texas 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 Texas issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Once largely dependent on the drilling, production, refining, chemical and
energy-related manufacturing sectors, the economy of Texas has diversified with
the major source of job growth in the State now being the service- producing
sector (which includes transportation and public utilities, finance, insurance
and real estate, trade, services, and government). Over the past decade, the
population of Texas grew at a rate twice as fast as that of the entire United
States. Currently the third largest state in the nation, Texas is expected to
move into second place by the late 1990's.
The Texas legislature passed a $80 billion biennial budget for fiscal years
1996 and 1997. The new budget includes no new tax increases. Historically, the
primary sources of the State's revenues have been sales taxes, mineral severance
taxes and Federal grants. The beginning fiscal 1994 cash balance was $1.6
billion. The State has no personal or corporate income tax, although the State
does impose a corporate franchise tax based on the amount of a corporation's
capital and surplus. A bill was passed by the legislature reforming educational
aid. Also, the State provided additional funding construction for poor
districts.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $28,227,021. For the
fiscal year ended July 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $56,319 (equivalent to 0.21% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of the full amount of its advisory fee and BMR
was allocated a portion of the expenses related to the operation of the
Portfolio in the amount of $18,606. For the ten months ended July 31, 1994,
absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$31,214 (equivalent to 0.17% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a portion
of the expenses related to the operation of the Portfolio in the amount of
$35,347. 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 $9,014 (equivalent to 0.16%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of the full amount
of its advisory fee and BMR was allocated a portion of the expenses related to
the operation of the Portfolio in the amount of $13,473. 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, absent a fee reduction, the Fund would have paid Eaton Vance advisory
fees of $2,404 (equivalent to 0.16% (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
$86,503.
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 July 31, 1995 and for the ten months ended July 31, 1994, $46,683 and
$85,239, 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 shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended July 31,
1995, the Principal Underwriter paid sales commissions of $70,683 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
$198,956, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $57,000 were
imposed on early redeeming shareholders and paid to the Principal Underwriter to
reduce Uncovered Distribution Charges. As at July 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $1,033,000 (which amount was equivalent to 3.7%
of the Fund's net assets on such date). During the fiscal year ended July 31,
1995, the Fund paid service fee payments under the Plan aggregating $27,544, of
which $27,536 was paid to Authorized Firms and the balance of which was retained
by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $170 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $3,110 and the
Portfolio paid IBT $7,834.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $333(2) $135,000(4)
Samuel L. Hayes, III ...... 32 322(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, Timothy T. Browse (36) is a Vice President of the Portfolio. Mr.
Browse 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 March 24, 1992 through July 31, 1995 and
for the one year period ended July 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE DE- MENT AFTER DE- DEDUCTING DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2>--------------------------- -------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F3> 3/24/92<F1> $1,000 $1,243.71 $1,213.71 24.37% 6.71% 21.37% 5.93%
1 Year
Ended
7/31/95<F3> 7/31/94 $1,000 $1,063.58 $1,013.58 6.36% 6.36% 1.36% 1.36%
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 March 24, 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 July 31, 1995, the yield of the Fund was
4.69%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.69% would be 6.80%, assuming a
federal tax rate of 31%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 17, 1995) was 5.12%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.24%. 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 55.9%
Aa or AA 7.5
A 18.0
Baa or BBB 12.3
Ba or BB 1.1
B --
Below B --
Not rated 5.2
-----
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 federal income tax
brackets applicable for 1995: 15% for single filers with taxable income up to
$23,350 and joint filers up to $39,000; 28% for single filers with taxable
income from $23,351 to $56,550 and joint filers from $39,001 to $94,250; 31% for
single filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 36% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; 39.6% for single and joint
filers with taxable income over $256,500. 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 federal
income 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.
TAX BRACKET
15% 28% 31% 36% 39.6%
-----------------------------------------------------
Tax free yield .......... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ...... 5.88 6.94 7.25 7.81 8.28
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
The Tax Free Yield Advantage
(36% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
5.00% Tax free investment
7.81% 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 federal tax bracket is 36% 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
In most every state which has an income tax, dividends paid by a mutual fund
attributable to investments in a particular state's municipal obligations are
exempt from both federal and such state's income tax. If Texas adopts an income
tax in the future, and assuming that its income tax policy with respect to
mutual funds investing in Texas state and local municipal obligations would be
similar to the general tax policy of other states, dividends paid by the Fund
would be exempt from Texas state income tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 20.3% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date, Edwin V. Bonneau and Barabara J. Bonneau, Farmers
Branch, TX owned beneficially and of record approximately (7.5%) 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 Eaton Vance Texas Tax Free Fund to EV Marathon Texas Tax Free Fund on
February 1, 1994 and to EV Marathon Texas Municipals Fund on December 1, 1995.
TAX EQUIVALENT YIELD TABLE
The table shows the approximate taxable bond yields which are equivalent to
tax-exempt bond yields from 4% to 7% under the regular federal income tax laws
that apply to 1995.
<TABLE>
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE YOUR JOINT THIS FEDERAL 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS<F1> RETURN IS<F1> BRACKET EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.0% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 28.0 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551 - $117,950 $ 94,251 - $143,600 31.0 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951 - $256,500 $143,601 - $256,500 36.0 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.6 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<FN>
<F1> Net amount subject to federal personal income tax after deductions and
exemptions.
</TABLE>
Note: The above-indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not take into account the phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above. Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield.
Of course, no assurance can be given that EV Marathon Texas Municipals Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations, the interest from which is exempt from
the regular federal income tax, other income received by the Portfolio and
allocated to the Fund may be taxable. This table does not take into account
state or local taxes, if any, payable on Fund distributions. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
[LOGO]
EV MARATHON MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1995
EV MARATHON ARIZONA MUNICIPALS FUND
EV MARATHON COLORADO MUNICIPALS FUND
EV MARATHON CONNECTICUT MUNICIPALS FUND
EV MARATHON MICHIGAN MUNICIPALS FUND
EV MARATHON MINNESOTA MUNICIPALS FUND
EV MARATHON NEW JERSEY MUNICIPALS FUND
EV MARATHON PENNSYLVANIA MUNICIPALS FUND
EV MARATHON TEXAS MUNICIPALS FUND
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 24 Federal Street, Boston, MA 02110
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-TFC12/1SAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
December 1, 1995
EV TRADITIONAL MUNICIPAL FUNDS
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND
EV TRADITIONAL NEW JERSEY MUNICIPALS FUND
EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND
24 Federal Street
Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As
described in the Prospectus, each Fund invests its assets in a separate
registered investment company (a "Portfolio") with the same investment
objective and policies as the Fund. Each Part II provides information solely
about a Fund and its corresponding Portfolio.
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ...................... 1
Investment Restrictions ............................................... 7
Trustees and Officers ................................................. 8
Investment Adviser and Administrator .................................. 10
Custodian ............................................................. 12
Services for Accumulation ............................................. 12
Service for Withdrawal ................................................ 13
Determination of Net Asset Value ...................................... 13
Investment Performance ................................................ 14
Taxes ................................................................. 15
Principal Underwriter ................................................. 17
Service Plan .......................................................... 18
Portfolio Security Transactions ....................................... 19
Other Information ..................................................... 20
Independent Certified Public Accountants .............................. 21
Financial Statements .................................................. 22
Appendix .............................................................. 23
PART II
EV Traditional Connecticut Municipals Fund ............................ a-1
EV Traditional New Jersey Municipals Fund ............................. b-1
EV Traditional Pennsylvania Municipals Fund ........................... c-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED DECEMBER 1, 1995, AS SUPPLEMENTED
FROM TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED
WITHOUT CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following information relates generally to the Fund, certain other
series of the Trust and the Portfolio. Capitalized terms used in this
Statement of Additional Information and not otherwise defined have the
meanings given them in the Fund's Prospectus. The Fund is subject to the same
investment policies as those of the Portfolio. The Fund currently seeks to
achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is exempt from federal income taxes and is not a tax preference item for
purposes of the federal alternative minimum tax: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986 which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of interest on
any municipal obligation, the Portfolio will generally rely on an opinion of
the issuer's counsel (when available) and will not undertake any independent
verification of the basis for the opinion. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986
is exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the
recipient's liability for the federal alternative minimum tax. For corporate
shareholders, the Fund's distributions derived from interest on all municipal
obligations (whenever issued) is included in "adjusted current earnings" for
purposes of the federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if the
secondary market purchase price is less than (i) the stated principal amount
payable at maturity, in the case of an obligation that does not have original
issue discount or (ii) in the case of an obligation that does have original
issue discount, the sum of the issue price and any original issue discount
that accrued before the obligation was purchased, subject to a de minimus
exclusion.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to
fund a wide range of public projects including the construction or improvement
of schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water, sewer and solid waste disposal systems;
highways, bridges and tunnels; port, airport and parking facilities;
transportation systems; housing facilities, colleges and universities and
hospitals. Although the principal security behind these bonds varies widely,
many provide additional security in the form of a debt service reserve fund
whose monies may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without legal obligation)
to make up deficiencies in the debt service reserve fund. Lease rental revenue
bonds issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds are in most cases
revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants
or similar rights covering equity securities. Such warrants or rights may be
held indefinitely, but if exercised, the Portfolio anticipates that it would,
under normal circumstances, dispose of any equity securities so acquired
within a reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but
rather make a single payment at maturity representing both principal and
interest. Bonds may be issued or subsequently offered with interest coupons
materially greater or less than those then prevailing, with price adjustments
reflecting such deviation.
The obligations of any person or entity to pay the principal of and
interest on a municipal obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. The Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
Boston Management and Research (the "Investment Adviser")) to evaluate or
protect any real estate, facilities or other assets securing any such
obligation or acquired by the Portfolio as a result of any such event, and the
Portfolio may also manage (or engage other persons to manage) or otherwise
deal with any real estate, facilities or other assets so acquired. The
Portfolio anticipates that real estate consulting and management services may
be required with respect to properties securing various municipal obligations
in its portfolio or subsequently acquired by the Portfolio. The Portfolio will
incur additional expenditures in taking protective action with respect to
portfolio obligations in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and Fitch Investors Service, Inc.
("Fitch") represent their opinions as to the quality of the municipal
obligations which they undertake to rate. It should be emphasized, however,
that ratings are based on judgment and are not absolute standards of quality.
Consequently, municipal obligations with the same maturity, coupon and rating
may have different yields while obligations of the same maturity and coupon
with different ratings may have the same yield. In addition, the market price
of such obligations will normally fluctuate with changes in interest rates,
and therefore the net asset value of the Portfolio will be affected by such
changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in a particular State,
"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.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state and local
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject
to a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt
service payments. Moreover, since a portion of housing, medical care and other
services may be financed by an initial deposit, it is important that the
facility maintain adequate financial reserves to secure estimated actuarial
liabilities. The ability of management to accurately forecast inflationary
cost pressures is an important factor in this process. The facilities may also
be affected adversely by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health
care or conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five
years. The North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The June, 1995 unemployment rate
was 13.9%.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the federal government. Most federal taxes,
except those such as social security taxes that are imposed by mutual consent,
are not levied in Puerto Rico. However, in conjunction with the 1993 U.S.
budget plan, Section 936 of the Internal Revenue Code was amended and provided
for two alternative limitations to the Section 936 credit. The first option
will limit the credit against such income to 40% of the credit allowable under
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option is a wage and depreciation based credit. The
reduction of the tax benefits to those U.S. companies with operations in
Puerto Rico may lead to slower growth in the future. There can be no assurance
that these modifications will not lead to a weakened economy, a lower rating
on Puerto Rico's debt or lower prices for Puerto Rican bonds that may be held
by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. Puerto Ricans voted to
retain Commonwealth status, leaving intact the current relationship with the
federal government. There can be no assurance that the statehood issue will
not be brought to a vote in the future. A successful statehood vote in Puerto
Rico would then require ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas was hit by a hurricane and sustained extensive damage. The
longer term impact on the tourism industry is not yet known. There can be no
assurances that the market for USVI bonds will not be affected.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experienced a budget
deficit in 1989 due to wage settlements with the unionized government
employees. A deficit was also experienced in 1990 due to Hurricane Hugo. The
USVI recorded a small surplus in fiscal year 1991. At the end of fiscal 1992,
the last year for which results are available, the USVI had an unreserved
General Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam
is expected to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. The Naval Air Station, one of several
U.S. military facilities on the island, has been slated for closure by the
Defense Base Closure and Realignment Committee; however, the administration
plans to use these facilities to expand the island's commercial airport. Guam
is also heavily reliant on tourists, particularly the Japanese. For 1994, the
financial position of Guam was weakened as it incurred an unaudited General
Fund operating deficit. The administration has taken steps to improve its
financial position; however, there are no guarantees that an improvement will
be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which
is issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to
these arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. Such arrangements are, therefore, subject to the risk
that the governmental issuer will not appropriate funds for lease payments.
Certain muncipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by the Portfolio. In the event the Portfolio acquires an unrated municipal
lease obligation, the Investment Adviser will be responsible for determining
the credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue
and compound over the period until maturity at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in the lowest investment grade, below investment grade and
comparable unrated obligations through active portfolio management, credit
analysis and attention to current developments and trends in the economy and
the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of
a market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the
same time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of municipal
obligations or changes in the investment objectives of investors. Such trading
may be expected to increase the portfolio turnover rate, which may increase
capital gains and the expenses incurred in connection with such trading. The
Portfolio anticipates that its annual portfolio turnover rate will generally
not exceed 100% (excluding turnover of securities having a maturity of one
year or less).
WHEN ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-issued"
basis, that is, delivery and payment for the securities normally taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the refinancing of an
issuer's outstanding indebtedness. Refunding contracts generally require the
issuer to sell and the Portfolio to buy such securities on a settlement date
that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-issued
basis it records the transaction and reflects the value of the security in
determining its net asset value. Securities purchased on a when-issued basis and
the securities held by the Portfolio are subject to changes in value based upon
the perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e. appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be greater fluctuations in the Portfolio's
net asset value than if it solely set aside cash to pay for when-issued
securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Variable rate obligations normally provide that the
holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, a bank may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder.
The Portfolio would anticipate using these obligations as cash equivalents
pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Interest income generated by certain bonds
having demand features may not qualify as tax-exempt interest. Longer term
fixed-rate bonds may give the holder a right to request redemption at certain
times (often annually after the lapse of an intermediate term). These bonds
are more defensive than conventional long term bonds (protecting to some
degree against a rise in interest rates) while providing greater opportunity
than comparable intermediate term bonds, because the Portfolio may retain the
bond if interest rates decline. By acquiring these kinds of obligations the
Portfolio obtains the contractual right to require the issuer of the security
or some other person (other than a broker or dealer) to purchase the security
at an agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not assign
any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price.
The Portfolio intends to limit this type of transaction to institutions (such
as banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to
facilitate portfolio liquidity or (if the seller so agrees) to hedge against
rising interest rates. There is no assurance that this kind of put option will
be available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates.
A separate put option may not be marketable or otherwise assignable, and sale
of the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to
assign any value to any separate put option which may be acquired to
facilitate portfolio liquidity, inasmuch as the value (if any) of the put will
be reflected in the value assigned to the associated security; any put
acquired for hedging purposes would be valued in good faith under methods or
procedures established by the Trustees of the Portfolio after consideration of
all relevant factors, including its expiration date, the price volatility of
the associated security, the difference between the market price of the
associated security and the exercise price of the put, the creditworthiness of
the issuer of the put and the market prices of comparable put options.
Interest income generated by certain bonds having put features may not qualify
as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio's custodian and maintained on a current basis at an amount at least
equal to the market value of the securities loaned, which will be marked to
market daily. Cash equivalents include short-term municipal obligations as
well as taxable certificates of deposit, commercial paper and other short-term
money market instruments. The Portfolio would have the right to call a loan
and obtain the securities loaned at any time on up to five business days'
notice. During the existence of a loan, the Portfolio will continue to receive
the equivalent of the interest paid by the issuer on the securities loaned and
will also receive a fee, or all or a portion of the interest on investment of
the collateral, if any. However, the Portfolio may pay lending fees to such
borrowers. The Portfolio would not have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of
the securities loaned would not exceed 30% of the Portfolio's total assets.
The Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects
to purchase). To hedge against changes in rates or for non-hedging purposes,
the Portfolio may enter into (i) futures contracts for the purchase or sale of
debt securities, (ii) futures contracts on securities indices and (iii)
futures contracts on other financial instruments and indices. All futures
contracts entered into by the Portfolio are traded on exchanges or boards of
trade that are licensed and regulated by the Commodity Futures Trading
Commission ("CFTC") and must be executed through a futures commission merchant
or brokerage firm which is a member of the relevant exchange. 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
Certain 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. The Fund's fundamental investment
restrictions are set forth under "Investment Restrictions" in Part II of this
Statement of Additional Information.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the 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 also adopted nonfundamental investment
policies which may be changed by the Trustees of the Trust with respect to the
Fund without approval of the Fund's shareholders or by the Trustees of the
Portfolio with respect to the Portfolio without the approval of the Fund or
the Portfolio's other investors. The Fund's nonfundamental policies are set
forth under "Investment Restrictions" in the Part II of this Statement of
Additional Information.
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.
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, Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of
the Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Woodubury
was elected Assistant Secretary on Jun 19, 1995.
For additional officers of the Portfolio (if any), 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 $16 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance offers single-state tax-free portfolios in more states than
any other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual
fund portfolios. Assets managed by the municipal investment group are
currently over $9.1 billion. The following persons manage one or more of the
Eaton Vance tax-free portfolios. For the identity of the Portfolio's portfolio
manager, see the Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II 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. In addition, Eaton Vance owns all the stock of Northeast
Properties, Inc., which is engaged in real estate investment, consulting and
management. EVC owns all the stock of Fulcrum Management, Inc., and MinVen
Inc., which are engaged in the development of precious metal properties. EVC
also owns 21% of the Class A shares of Lloyd George Management (B.V.I.)
Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV may
also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT
charges custody fees which are competitive within the industry. A portion of
the fee relates to custody, bookkeeping and valuation services and is based
upon a percentage of Fund and Portfolio net assets and a portion of the fee
relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. Landon T. Clay, a Director of EVC and an
officer, Trustee or Director of other members of the Eaton Vance organization,
owns approximately 13% of the stock of IBT. Management believes that such
ownership does not create an affiliated person relationship between the Fund
or the Portfolio and IBT under the Investment Company Act of 1940. For the
custody fees that the Portfolio and the Fund paid to IBT, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is
anticipated that $50,000 or more of Fund shares and shares of the other
continuously offered open-end funds listed under "The Eaton Vance Exchange
Privilege" in the current Prospectus of the Fund will be purchased within a
13-month period, a Statement of Intention should be signed so that shares may
be obtained at the same reduced sales charge as though the total quantity were
invested in one lump sum. Shares held under Right of Accumulation (see below)
as of the date of the Statement will be included toward the completion of the
Statement. The Statement authorizes the Transfer Agent to hold in escrow
sufficient shares (5% of the dollar amount specified in the Statement) which
can be redeemed to make up any difference in sales charge on the amount
intended to be invested and the amount actually invested. Execution of a
Statement does not obligate the shareholder to purchase or the Fund to sell
the full amount indicated in the Statement, and should the amount actually
purchased during the 13-month period be more or less than that indicated on
the Statement, price adjustments will be made. For sales charges and other
information on quantity purchases, see "How to Buy Fund Shares" in the Fund's
current Prospectus. Any investor considering signing a Statement of Intention
should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable
sales charge level for the purchase of Fund shares is calculated by taking the
dollar amount of the current purchase and adding it to the value (calculated
at the maximum current offering price) of the shares the shareholder owns in
his account(s) in the Fund and in the other continuously offered open-end
funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund for which Eaton Vance acts as investment adviser or
administrator at the time of purchase. The sales charge on the shares being
purchased will then be at the rate applicable to the aggregate. For example,
if the shareholder owned shares valued at $30,000 in EV Traditional California
Municipals Fund, and purchased an additional $20,000 of Fund shares, the sales
charge for the $20,000 purchase would be at the rate of 2.75% of the offering
price (2.83% of the net amount invested) which is the rate applicable to
single transactions of $50,000. For sales charges on quantity purchases, see
"How to Buy Fund Shares" in the Fund's current Prospectus. Shares purchased
(i) by an individual, his or her spouse and their children under the age of
twenty-one, and (ii) by a trustee, guardian or other fiduciary of a single
trust estate or a single fiduciary account, will be combined for the purpose
of determining whether a purchase will qualify for the Right of Accumulation
and if qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her financial service firm ("Authorized Firm") must
provide Eaton Vance Distributors, Inc. (the "Principal Underwriter") (in the
case of a purchase made through an Authorized Firm) or the Transfer Agent (in
the case of an investment made by mail) with sufficient information to permit
verification that the purchase order qualifies for the accumulation privilege.
Confirmation of the order is subject to such verification. The Right of
Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Fund's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services -
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gain distributions in
connection with withdrawal plan accounts will be credited at net asset value
as of the record date for each distribution. Continued withdrawals in excess
of current income will eventually use up principal, particularly in a period
of declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price, (i.e., net asset value plus the applicable sales charge) will
have to be deposited with the Transfer Agent. The maintenance of a withdrawal
plan concurrently with purchases of additional Fund shares would be
disadvantageous because of the sales charge included in such purchases. A
shareholder may not have a withdrawal plan in effect at the same time he or
she has authorized Bank Automated Investing or is otherwise making regular
purchases of Fund shares. The shareholder, the Transfer Agent or the Principal
Underwriter will be able to terminate the withdrawal plan at any time without
penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transaction prices for most municipal obligations held by the Portfolio, and
such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by the Trustees of the Portfolio. The Fund and
the Portfolio will be closed for business and will not price their respective
shares or interests on the following business holidays: New Year's Day,
President's Day, Good Friday (a New York Stock Exchange holiday), Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. The
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a
hypothetical initial purchase order of $1,000 by the average annual compound
rate of return (including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) for the stated period and annualizing the
results. The calculation assumes the maximum sales charge is deducted from the
initial $1,000 purchase order and that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period. For
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 (which includes the maximum sales charge) per share
on the last day of the period and annualizing the resulting figure. Net
investment income per share is calculated from the yields to maturity of all
debt obligations held by the Portfolio based on prescribed methods, reduced by
accrued Fund expenses for the period, with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
dividends during the period. Yield calculations assume a maximum sales charge
equal to 3.75% of the public offering price. Actual yield may be affected by
variations in sales charges on investments. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by 1 minus a stated
rate. For the yield and taxable equivalent yield of the Fund, see "Performance
Information" in the Fund's Part II of this Statement of Additional Information.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized, by the current maximum
offering price per share. The Fund's effective distribution rate is computed
by dividing the distribution rate by the ratio (the days in a year divided by
the accrual days of the monthly period) used to annualize the most recent
monthly distribution and reinvesting the resulting amount for a full year on
the basis of such ratio. The effective distribution rate will be higher than
the distribution rate because of the compounding effect of the assumed
reinvestment. Investors should note that the Fund's yield is calculated using
a standardized formula, the income component of which is computed from the
yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on the Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month (see "Distributions and Taxes" in the Fund's current
Prospectus). For the Fund's distribution rate and effective distribution rate,
see "Performance Information" in the Fund's Part II 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 the other investment companies.
From time to time, evaluations of the Fund's performance made by
independent sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger
and Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
From time to time 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 (after reduction
by any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to avoid any federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended July 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
Shares of the Fund may be continuously purchased at the public offering
price through certain Authorized Firms which have agreements with the
Principal Underwriter. The Principal Underwriter is a wholly-owned subsidiary
of Eaton Vance.
The public offering price is the net asset value next computed after
receipt of the order, plus, where applicable, a variable percentage (sales
charge) depending upon the amount of purchase as indicated by the sales charge
table set forth in the Fund's current Prospectus (see "How to Buy Fund
Shares"). Such table is applicable to purchases of the Fund alone or in
combination with purchases of the other funds offered by the Principal
Underwriter, made at a single time by (i) an individual, or an individual, his
spouse and their children under the age of twenty-one, purchasing shares for
his or their own account, and (ii) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of Fund shares,
alone or in combination with purchases of any of the other funds offered by
the Principal Underwriter, through one dealer aggregating $50,000 or more made
by any of the persons enumerated above within a thirteen-month period starting
with the first purchase pursuant to a written Statement of Intention, in the
form provided by the Principal Underwriter, which includes provisions for a
price adjustment depending upon the amount actually purchased within such
period (a purchase not made pursuant to such Statement may be included
thereunder if the Statement is filed within 90 days of such purchase); or (2)
purchases of the Fund pursuant to the Right of Accumulation and declared as
such at the time of purchase.
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is
merged or consolidated with or acquired by the Fund. Normally no sales charges
will be paid in connection with an exchange of Fund shares for the assets of
such investment company. Shares may be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio or
any investment company for which Eaton Vance or BMR acts as investment
adviser, any investment advisory, agency, custodial or trust account managed
or administered by Eaton Vance or by any parent, subsidiary or other affiliate
of Eaton Vance, or any officer, director or employee of any parent, subsidiary
or other affiliate of Eaton Vance. The terms "officer," "director," "trustee,"
"general partner" or "employee" as used in this paragraph include any such
person's spouse and minor children, and also retired officers, directors,
trustees, general partners and employees and their spouses and minor
chilldren. Shares of the Fund may also be sold at net asset value to
registered representatives and employees of Authorized Firms and to the
spouses and children under the age of 21 and beneficial accounts of such
persons.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors and other selling literature and of advertising are borne
by the Principal Underwriter. The fees and expenses of qualifying and
registering and maintaining qualifications and registrations of the Fund and
its shares under federal and state securities laws are borne by the Fund. The
Distribution Agreement is renewable annually by the Board of Trustees of the
Trust (including a majority of its Trustees who are not interested persons of
the Principal Underwriter or the Trust), may be terminated on six months'
notice by either party and is automatically terminated upon assignment. The
Principal Underwriter distributes Fund shares on a "best efforts" basis under
which it is required to take and pay for only such shares as may be sold. The
Principal Underwriter allows Authorized Firms discounts from the applicable
public offering price which are alike for all Authorized Firms. The Principal
Underwriter may allow, upon notice to all Authorized Firms with whom it has
agreements, discounts up to the full sales charge during the periods specified
in the notice. See "How to Buy Fund Shares" for the discount allowed to
Authorized Firms on the sale of Fund shares. During periods when the discount
includes the full sales charge, such Authorized Firms may be deemed to be
underwriters as that term is defined in the Securities Act of 1933. For the
amount of sales charges for sales of Fund shares paid to the Principal
Underwriter (and Authorized Firms), see "Fees and Expenses" in the Fund's Part
II of this Statement of Additional Information.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the Principal Underwriter. The Principal Underwriter estimates that
the expenses incurred by it in acting as repurchase agent for the Fund will
exceed the amounts paid therefor by the Fund. For the amount paid by the Fund
to the Principal Underwriter for acting as repurchase agent, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the requirements of Rule 12b-1 (the "Rule") under the 1940
Act and the service fee requirements of the revised sales charge rule of the
National Association of Securities Dealers, Inc. (Management believes service
fee payments are not distribution expenses governed by the Rule, but has
chosen to have the Plan approved as if the Rule were applicable.) The
following supplements the discussion of the Plan contained in the Fund's
Prospectus.
The Plan remains in effect through April 28, 1996, and from year to year
thereafter, provided such continuance is approved by a vote of both a majority
of (i) those Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Rule 12b-1 Trustees") and (ii) all of the
Trustees then in office, cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan. The Plan may be terminated any time by
vote of the Rule 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. Pursuant to such Rule, the Plan has been
approved by the Fund's initial sole shareholder (Eaton Vance) and by the Board
of Trustees of the Trust, including the Rule 12b-1 Trustees.
Under the Plan, the President or a Vice President of the Trust shall
provide to the Trustees for their review, and the Trustees shall review at
least quarterly, a written report of the amount expended under the Plan and
the purposes for which such expenditures were made. The Plan may not be
amended to increase materially the payments described herein without approval
of the shareholders of the Fund, and all material amendments of the Plan must
also be approved by the Trustees of the Trust as prescribed by the Rule. So
long as the Plan is in effect, the selection and nomination of Trustees who
are not interested persons of the Trust shall be committed to the discretion
of the Trustees who are not such interested persons. The Trustees have
determined that in their judgment there is a reasonable likelihood that the
Plan will benefit the Fund and its shareholders. For the service fees paid by
the Fund under the Plan, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
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 is organized as a Massachusetts business trust. As permitted by
Massachusetts law, there will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees of the Trust holding office have been elected by
shareholders. In such an event the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The by-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes as do not have a materially adverse effect on the financial
interests of shareholders or if they deem it necessary to conform it to
applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any
emergency as determined by the Commission which makes it impracticable for the
Portfolio to dispose of its securities or value its assets, or during any
other period permitted by order of the Commission for the protection of
investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual
Report accompanies this Statement of Additional Information.
Registrant incorporates by reference the audited financial information for
the Fund's and Portfolio's for the fiscal year ended July 31, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950135-95-002074).
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse change could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL CONNECTICUT
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 Connecticut Municipals Portfolio (the
"Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the
Fund's net assets (taken at current value), is held as collateral for such
sales at any one time. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
is not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as
principal; however, any such person or concerns may be employed as a broker
upon customary terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no
longer in the best interests of the Fund and its shareholders, it will revoke
the commitment by terminating sales of its shares in the state(s) involved.
As a matter of nonfundamental policy, neither the Fund nor the Portfolio
may 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; provided, however, that the Fund
may invest without limitation in the Portfolio or in another investment
company with substantially the same investment objective. Neither the Fund nor
the Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio in another investment
company with substantially the same investment objective. Neither the Fund nor
the Portfolio may engage in options, futures or forward transactions if more
than 5% of its net assets, as measured by the aggregate of the premiums paid
by the Fund or the Portfolio, would be so invested. The Fund and Portfolio may
purchase put options on municipal obligations only if, after such purchase,
not more than 5% of its net assets, as measured by the aggregate of the
premiums paid for such options held by it, would be so invested. Neither the
Fund nor the Portfolio may invest in warrants, valued at the lower of cost or
market, exceeding 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of its net assets, may be warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by the Fund or the Portfolio in units or attached to securities may
be deemed to be without value. Neither the Fund nor the Portfolio intends to
invest in reverse repurchase agreements during the current fiscal year.
RISKS OF CONCENTRATION
The following information as to certain Connecticut considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Connecticut 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 Connecticut issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Although the manufacturing sector has traditionally been of prime economic
importance to Connecticut, the non-manufacturing sector of employment
(primarily aircraft engines, helicopters and submarines) now dominate the
State's economy. Approximately 82% of the State's non-agricultural employment
is in the non-manufacturing sector, with 30% of the total in the service
sector, 22% in the wholesale and retail trade sector, and 14% in the
government sector. Defense-related business plays an important role in the
Connecticut economy, and defense awards to Connecticut have traditionally been
among the highest in the nation on a per capita basis. However, in recent
years the federal government has reduced defense-related spending which has
had an adverse impact on the Connecticut economy.
As of June 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 5.4%, compared to 5.6% for the nation. Between June 1994
and June 1995, the State lost 1,700 non-farm jobs, with gains in the services,
and construction sectors being offset by losses in the manufacturing (durable
goods), finance, insurance and real estate sectors of the economy. The State's
economy is beginning a slow recovery, constrained by military spending cuts
and cost containment pressures in the insurance and biomedical industries. The
full economic impact of continued corporate downsizing in the defense and
insurance industries may not be fully realized.
The State derives over 70% of its revenues from taxes imposed by the
State. The two major taxes have been the sales and use tax and the corporation
business tax, each of which is sensitive to changes in the level of economic
activity in the State, but the Connecticut personal income tax on individuals,
trusts, and estates enacted in 1991 is expected to supersede them in
importance. In order to promote economic stability and provide a positive
business climate, several tax changes were adopted during the 1993 legislative
session. Among the most significant changes were the changes to the
Corporation Business Tax -- a 4 year gradual rate reduction to 11.25%
beginning January 1, 1995; 11% beginning January 1, 1996; 10.5% beginning
January 1, 1997 and 10% beginning January 1, 1998.
During fiscal 1991-92, the State issued $965.7 million of Economic
Recovery Notes, of which $455.6 million remained outstanding as of March 1995.
The State ended the 1992-93 fiscal year with a $113.5 million General Fund
operating surplus and a $19.7 million General Fund surplus for the 1993-94
fiscal year. The estimated surplus at June 1995 for the General Fund is $74.5
million, and the estimated surplus for the Transportation Fund is $57.9
million.
The State, its officers and employees are defendants in numerous lawsuits.
According to the State Attorney General's Office, an adverse decision in any
of the cases summarized herein could materially affect the State's financial
position: (i) an action to enforce the spending cap provision of the State's
constitution by seeking to require that the General Assembly define certain
terms used therein and to enjoin certain increases in "general budget
expenditures" until this is done; (ii) litigation on behalf of black and
hispanic school children in the City of Hartford seeking "integrated
education" within the greater Hartford metropolitan area; (iii) litigation
involving claims by Indian tribes to less than 1/10 of 1% of the State's land
area; (iv) litigation challenging the State's method of financing elementary
and secondary public schools on the grounds that it denies equal access to
education; (v) an action in which two retarded persons seek placement outside
a State hospital, new programs, and damages on behalf of themselves and all
mentally retarded patients at the hospital; (vi) litigation involving claims
for refunds of taxes by several cable television companies; (vii) an action on
behalf of all persons with retardation or traumatic brain injury, claiming
that their constitutional rights are violated by placement in State hospitals
alleged not to provide adequate treatment and training, and seeking placement
in community residential settings with appropriate support services; (viii) an
action by the Connecticut Hospital Association and 33 hospitals seeking to
require the State to reimburse hospitals for in-patient medical services on a
more favorable basis; (ix) a class action by the Connecticut Criminal Defense
Lawyers Association claiming a campaign of illegal surveillance activity and
seeking damages and injunctive relief; (x) two actions for monetary damages
brought by a former patient at a State mental hospital stemming from an
attempted suicide that left her brain-damaged; (xi) an action challenging the
validity of the State's imposition of surcharges on hospital charges to
finance certain uncompensated care costs incurred by hospitals; and (xii) an
action challenging the validity of the State's imposition of gross earnings
taxes on hospital revenues to finance certain uncompensated care costs.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $195,275,789. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$835,605 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $635,227 (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 $331,388 (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 July 31, 1995 and for the period from the start of business, April
19, 1994, to the fiscal year ended July 31, 1994, $19,622 and $1,413,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this Statement of
Additional Information. The Trustees have initially implemented the Plan by
authorizing the Fund to make quarterly service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .20% of the
Fund's average daily net assets for any fiscal year based on the value of Fund
shares sold by such persons and remaining outstanding for at least twelve
months. During the fiscal year ended July 31, 1995, the Fund made service fee
payments under the Plan aggregating $36, which amount was paid to Authorized
Firms.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund for the fiscal
year ended July 31, 1995 was $28,595, of which $28 was received by the
Principal Underwriter and $28,567 was received by Authorized Firms.
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $7.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transactiion).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $1,419 and the
Portfolio paid IBT $48,135.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 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 $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 $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, 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 (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 July 31, 1995 and for the one year period
ended July 31, 1995. The total return for the period prior to the Fund's
commencement of operations on April 19, 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------------ ------------------------------
PERIOD DATE INVESTMENT<F1> ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 5/1/92 $962.76 $1,160.72 20.56% 5.92% 16.07% 4.69%
1 Year
Ended
7/31/95<F2> 7/31/94 $962.82 $1,019.56 5.89% 5.89% 1.96% 1.96%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Initial investment less the current maximum sales charge of 3.75%.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended July 31, 1995, the yield of the Fund was
5.21%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 5.21% would be 7.91%,
assuming a combined federal and State tax rate of 34.11%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 31, 1995) was 5.49%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.63%. 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
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------- -----------
Aaa or AAA 33.8%
Aa or AA 27.2
A 22.1
Baa or BBB 14.9
Ba or BB --
B --
Below B --
Not rated 2.0
----
Total 100.0%
The following compares the taxable equivalent yield of an investment in
the Fund yielding a hypothetical 5.5% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used are the combined
federal and Connecticut tax brackets applicable for 1995: 18.25% for single
filers with taxable income up to $23,350 and joint filers up to $39,000;
31.24% for single filers with taxable income from $23,351 to $56,550 and joint
filers from $39,001 to $94,250; 34.11% for single filers with taxable income
from $56,551 to $117,950 and joint filers from $94,251 to $143,600; 38.88% for
single filers with taxable income from $117,951 to $256,500 and joint filers
from $143,601 to $256,500; and 42.32% 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 highest effective Connecticut State income tax rate is 4.5%. Tax
credits reduce the effective Connecticut tax rate for single filers with
taxable income up to $52,500 and joint filers up to $100,500. The combined
brackets use the highest effective Connecticut tax rate for single or joint
filers within each combined bracket. Taxpayers with taxable income within
these brackets may have a lower combined tax rate than indicated above. 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. 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
18.25% 31.24% 34.11% 38.88% 42.32%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 5.50% 5.50% 5.50% 5.50% 5.50%
Taxable equivalent ................................. 6.73 8.00 8.35 9.00 9.54
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.66 2.23 2.14 1.99 1.87
</TABLE>
The Tax Free Yield Advantage
(38.88% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.99% After-tax yield
5.50% Tax free investment
9.00% Taxable equivalent yield
5.50% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 5.50% Tax free
Pretax income: $3,250.00 $5,500.00
Tax: (1,263.60) NONE
After-tax income: $1,986.40 $5,500.00
The 1995 combined tax bracket takes into account federal and Connecticut
State income taxes and uses the highest effective Connecticut tax rate for
single or joint filers (reduced by available tax credits). Assuming the
deductibility of State taxes on the federal return, the bracket is 38.88% 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 9.2% 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 outstanding
shares of the Fund indicated after their names: George J. Sherman 1989 Trust,
Wm. T. Sherman Trs dtd 12/19/89, West Hanford, CT (16.9%); Mary E. Corona,
Wethersfield, CT (7.2%); George H. Marcinek, Killingworth, CT (7.0%); Martha
W. Duck, Darien, CT (6.9%) and Carol Gardner Wallace, Fairfield, CT (6.0%). To
the knowledge of the Trust, no other person owned of record of beneficially 5%
or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Traditional Connecticut Tax Free Fund to EV
Traditional Connecticut Municipals Fund on December 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 Connecticut 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 CONNECTICUT STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- --------------------- CT 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 18.25% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 56,551 - $117,950 $ 94,251 - $143,600 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$117,951 - $256,500 $143,601 - $256,500 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $256,500 Over $256,500 42.32 6.93 7.80 8.67 9.54 10.40 11.27 12.14
<FN>
<F1> Net amount subject to federal and Connecticut personal income tax after deductions and exemptions.
<F2> The Connecticut personal income tax rate is 4.5%. Tax credits reduce the effective Connecticut tax rate for single filers
with taxable income up to $52,500 and joint filers up to $100,500. The combined federal and Connecticut tax brackets are
calculated using the highest effective Connecticut tax rate for single or joint filers (reduced by available tax credits)
within each bracket. 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 Connecticut 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 Connecticut 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 Traditional Connecticut
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
Connecticut 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
Connecticut 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 TRADITIONAL NEW JERSEY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New Jersey State personal income taxes. The
Fund currently seeks to meet its investment objective by investing its assets in
the New Jersey Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value), is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933, or participate on a joint or a joint and
several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund permitted to incur. The Fund will not purchase
securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis is
not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures contracts on securities and on securities, economic and
other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as principal;
however, any such person or concerns may be employed as a broker upon customary
terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no longer
in the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state(s) involved.
As a matter of nonfundamental policy, neither the Fund nor the Portfolio may
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; provided, however, that the Fund may invest
without limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the Portfolio
may purchase securities of unseasoned issuers, including their predecessors,
which have been in operation for less than three years, if by reason thereof the
value of its aggregate investment in such class of securities will exceed 5% of
its total assets, provided that the issuers of securities rated by Moody's, S&P,
Fitch or any other nationally recognized rating service shall not be considered
"unseasoned"; provided, however, that the Fund may invest without limitation in
the Portfolio in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may purchase call
options on securities. The Fund and Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its net
assets, as measured by the aggregate of the premiums paid for such options held
by it, would be so invested. Neither the Fund nor the Portfolio may invest in
warrants, valued at the lower of cost or market, exceeding 5% of the value of
its net assets. Included within that amount, but not to exceed 2% of the value
of its net assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund or the Portfolio in units
or attached to securities may be deemed to be without value. Neither the Fund
nor the Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
RISKS OF CONCENTRATION
The following information as to certain New Jersey considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in New Jersey issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
Jersey issuers. Neither the Trust nor the Portfolio has independently verified
this information.
New Jersey has a well diversified economy and high wealth levels. Per capita
income ranks as one of the highest in the nation. The State's economy benefits
from its proximity to New York and other major eastern seaboard cities. New
Jersey's economy, like most states, suffered during the recent recession with
unemployment increasing and surpassing the national average. New Jersey's
adjusted unemployment rate for May 1995 was 6.5% compared to 5.7% nationally.
As of the date of this Statement of Additional Information, New Jersey's
general obligation debt was rated Aa1, AA+ and AA+, by Moody's, S&P and Fitch,
respectively. As a result of New Jersey's fiscal weakness, evidenced by
declining fund balances, S&P placed the State's general obligation debt and
related agency and lease obligations on CreditWatch with negative implications
in June 1991. In July, 1991 S&P downgraded the State's general obligation debt
from AAA to AA+. As part of this action, numerous agency and lease obligation
debts were also downgraded accordingly. These downgrades did not affect state
university and college ratings. In August 1992, Moody's downgraded New Jersey to
Aa1 from Aaa due to the use of one-time revenue items, revenue shortfalls and
ongoing operating deficits. S&P affirmed their AA+ rating for the State, but
retained the negative outlook. On December 16, 1992, Fitch lowered their rating
on the State to AA+ from AAA. The rating action was due to the State's decision,
with the most recent bond issuance, to defer debt service in the immediate
future in order to provide for unmet capital needs, while increasing debt
service requirements in future years wnen additional resources may or may not be
available.
As part of the 1992-1993 budget, the Legislature cut approximately $1
billion in spending from the Governor's budget, including cutbacks in both the
State's homestead rebate and general assistance programs. To cover the shortfall
resulting from the cutbacks, the State employee pension fund was revalued,
allowing the State to reduce its contribution, and a surplus in the school aid
funds was applied to the General Fund. The State ended fiscal 1993 with an $855
million surplus, approximately half of which was used in the 1994 budget. 1994
had an appropriation for all funds of $15.7 billion, up 4.8% from fiscal 1993
revised appropriations of $14.7 billion. Both years benefited from $412 million
in nonrecurring revenues from retroactive Federal Medicaid payments. After the
Legislature reduced the Governor's fiscal 1994 requests by $182 million, about
half the $855 million fiscal 1993 total surplus was used for fiscal 1994, with a
June 30, 1994 forecast of $416 million -- $110 million allocated to the General
Fund and over $305 million to rainy day and taxpayer relief funds.
In 1994, New Jersey adopted a 5% personal income tax cut retroactive to
January 1, 1994. In 1995, New Jersey adopted a 10% personal income tax cut
retroactive to January 1, 1995. On June 26, 1995, the New Jersey State
Legislature passed an additional 15% reduction to take effect January 1, 1996.
State officials estimate the revenue loss resulting from these tax cuts at over
$1 billion for fiscal 1996. To accommodate the tax cut, the fiscal 1996 budget
would rely on non-recurring revenues and the use of prior years' surplus.
Furthermore, a major focus of the spending reductions has been employer
contributions to retiree health care and pension systems which were cut by over
$863 million in fiscal 1995. There can be no assurance that the tax cuts will
not have an adverse impact on the State's finances and the demand for municipal
bonds in the State.
General obligation bonds of New Jersey are the primary method for New Jersey
financing of capital projects. These bonds are backed by the full faith and
credit of New Jersey. New Jersey tax revenues and certain other fees are pledged
to meet the principal and interest payments required to fully pay the debt. No
general obligation debt can be issued by New Jersey without prior voter
approval, except that, pursuant to a constitutional amendment, no voter approval
is required for any law authorizing the creation of a debt for the purpose of
refinancing all or a portion of the outstanding debt of New Jersey, so long as
such law requires that the refinancing provided debt service savings. The New
Jersey Constitution also provides that no voter approval is required for debt
issued for purposes of war, to repel invasion, to suppress insurrection or to
meet an emergency caused by disaster or act of God. Capital construction can
also be funded by appropriation of current revenues on a pay- as-you-go basis.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning.
Other State-related obligations include those created pursuant to the New
Jersey Building Authority Act, which has the power to construct facilities for
leasing to the State. The rental for such buildings is equal to the debt service
relating thereto plus payments in lieu of real estate taxes. Legislation
provides for future appropriations for State aid to local school districts equal
to debt service on a maximum principal amount of $280,000,000 of bonds issued by
such local school districts for construction and renovation of school facilities
and for State aid to counties equal to debt service on up to $80,000,000 of
bonds issued by counties for construction of county college facilities.
The authorizing legislation for various State entities provides for specific
budgetary procedures with respect to certain obligations issued by such
entities. Bonds issued pursuant to authorizing legislation of this type are
sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible State entities. Currently, there are two such entities available for
State appropriations to meet moral obligations. The New Jersey Housing and
Mortgage Finance Agency has not had a deficiency in a debt service reserve which
required New Jersey to appropriate funds. It is anticipated that the agency's
revenue will continue to be sufficient to cover debt service on its bonds. The
State provides the South Jersey Port Corporation with funds to cover all debt
service and property tax requirements, when earned revenues are anticipated to
be insufficient to cover these obligations. In the past, anticipated revenues
have, in some cases, been insufficient to cover debt service and/or insufficient
to cover all property tax requirements. These are numerous other State-created
entities with outstanding debt. This debt is supported by revenues derived from
or assets of the various projects financed by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties and
municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may be
issued and requiring their repayment within three months of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance of
bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the Local
Finance Board. State law also authorizes State officials to supervise fiscal
administration in any municipality facing financial difficulties.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $411,038,422. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$1,944,340 (equivalent to 0.47% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $1,609,137 (equivalent to 0.46% (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 $1,012,430 (equivalent to 0.46%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended July 31, 1995 and for the period from the start of business, April
13, 1994, to the fiscal year ended July 31, 1994, $19,481 and $1,482,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be continued
as described under "Service Plan" in Part I of this Statement of Additional
Information. The Trustees have initially implemented the Plan by authorizing the
Fund to make quarterly service fee payments to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed .20% of the Fund's average
daily net assets for any fiscal year based on the value of Fund shares sold by
such persons and remaining outstanding for at least twelve months. During the
fiscal year ended July 31, 1995, the Fund made service fee payments under the
Plan aggregating $28, which amount was paid to Authorized Firms.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, total sales charges of $62,628 were
paid on sales of Fund shares. All of such amount was paid to Authorized Firms.
For the fiscal year ended July 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 July 31, 1995, the Fund paid IBT $2,584 and the
Portfolio paid IBT $91,170.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 funds in the Eaton Vance fund complex(1)
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $0 $3,594(2) $135,000(4)
Samuel L. Hayes, III ..... 0 3,569(3) 150,000(5)
Norton H. Reamer ......... 0 3,545 135,000
John L. Thorndike ........ 0 3,661 140,000
Jack L. Treynor .......... 0 3,742 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $889 of deferred compensation.
(3) Includes $1,086 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
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 January 8, 1991 through July 31, 1995 and for the one year period
ended July 31, 1995. The total return for the period prior to the Fund's
commencement of operations on April 13, 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OFFERED EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------ ------------------------
PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- --------- ----------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund+ 1/8/91 $962.06 $1,331.56 38.42% 7.39% 33.16% 6.48%
1 Year
Ended
7/31/95+ 7/31/94 $962.24 $1,025.94 6.62% 6.62% 2.59% 2.59%
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.
- ----------
*Initial investment less the current maximum sales charge of 3.75%.
+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 July 31, 1995, the yield of the Fund was
5.46%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.46% would be 8.47%, assuming a
combined federal and New Jersey tax rate of 35.54%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 31, 1995) was 5.69%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.84%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 25.3%
Aa or AA 19.2
A 21.3
Baa or BBB 13.2
Ba or BB 7.0
B --
Below B --
Not rated 14.0
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 6.0% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the federal and New Jersey
State income tax brackets applicable for 1995: 16.81% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 32.33% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250; 35.54% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 40.21% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 43.57% 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 are calculated using the highest New Jersey State rate applicable at
the upper portion of the brackets and assume that New Jersey taxes are deducted
on the federal income tax return. 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. See your tax adviser for
additional information.
<TABLE>
<CAPTION>
TAX BRACKET
16.81% 32.33% 35.54% 40.21% 43.57%
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................ 6.00% 6.00% 6.00% 6.00% 6.00%
Taxable equivalent ............ 7.21 8.87 9.31 10.04 10.63
Certificates of deposit:
Yield ..................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........... 2.70 2.20 2.09 1.94 1.83
</TABLE>
The Tax Free Yield Advantage
(40.21% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.94% After-tax yield
6.00% Tax free investment
10.04% Taxable equivalent yield
6.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 6.00% Tax free
Pretax income: $3,250.00 $6,000.00
Tax: (1,306.83) NONE
After-tax
income: $1,943.17 $6,000.00
The 1995 combined tax bracket takes into account federal and New Jersey
State income taxes. Assuming the deductibility of state taxes on the federal
return, the bracket is 40.21% 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 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
and Smith Barney, Inc., New York, NY., were the record owners of approximately
13.21% and 9.45%, respectively, of the outstanding shares, which were held on
behalf of their customers who are beneficial owners of such shares, and as to
which they had voting power under certain limited circumstances. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Traditional New Jersey Tax Free Fund to EV Traditional New Jersey
Municipals Fund on December 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 New Jersey 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 NEW JERSEY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------------------------- NJ STATE -----------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------- ------------ ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 16.81% 4.81% 5.41% 6.01% 6.61% 7.21% 7.81% 8.41%
$ 23,351- 56,550 $ 39,001- 94,250 32.33% 5.91 6.65 7.39 8.13 8.87 9.61 10.34
$ 56,551- 117,950 $ 94,251- 143,600 35.54% 6.21 6.98 7.76 8.53 9.31 10.08 10.86
$117,951- 256,500 $143,601- 256,500 40.21% 6.69 7.53 8.36 9.20 10.04 10.87 11.71
Over $256,500 Over $256,500 43.57% 7.09 7.98 8.86 9.75 10.63 11.52 12.41
- -----------------------------------------------------------------------------------------------------------------------------------
*Net amount subject to federal and New Jersey personal income tax after deductions and exemptions.
+ The combined tax rates for the tax brackets shown in the left hand columns are calculated using the highest New Jersey State
rate applicable at the upper portion of these brackets and assume the taxpayers deduct New Jersey State income taxes paid on
their federal income tax returns. An investor with taxable income below the highest dollar amount in such tax brackets may have a
lower combined tax rate than the combined rates shown. The taxable equivalent yields for such an investor may be lower than
indicated above. Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket
and higher taxable equivalent yield then 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 New Jersey 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 Traditional New Jersey Municipals Fund will achieve any specific tax exempt yield.
While it is expected that the Portfolio will invest principally in obligations, the interest from which is exempt from the regular
federal income tax and New Jersey personal income taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any, payable on Fund distributions except for New Jersey
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.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL PENNSYLVANIA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Pennsylvania State and local
taxes in the form of an investment exempt from Pennsylvania personal property
taxes. The Fund currently seeks to meet its investment objective by investing
its assets in the Pennsylvania Municipals Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value), is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value);
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933, or participate on a joint or a joint and
several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund permitted to incur. The Fund will not purchase
securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis is
not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) 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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures contracts on securities and on securities, economic and
other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust its, investment adviser or its underwriter, as principal;
however, any such person or concerns may be employed as a broker upon customary
terms; or
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no longer
in the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state(s) involved.
As a matter of nonfundamental policy, neither the Fund nor the Portfolio may
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; provided, however, that the Fund may invest
without limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the Portfolio
may purchase securities of unseasoned issuers, including their predecessors,
which have been in operation for less than three years, if by reason thereof the
value of its aggregate investment in such class of securities will exceed 5% of
its total assets, provided that the issuers of securities rated by Moody's, S&P,
Fitch or any other nationally recognized rating service shall not be considered
"unseasoned"; provided, however, that the Fund may invest without limitation in
the Portfolio in another investment company with substantially the same
investment objective. Neither the Fund nor the Portfolio may purchase call
options on securities. The Fund and Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its net
assets, as measured by the aggregate of the premiums paid for such options held
by it, would be so invested. Neither the Fund nor the Portfolio may invest in
warrants, valued at the lower of cost or market, exceeding 5% of the value of
its net assets. Included within that amount, but not to exceed 2% of the value
of its net assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund or the Portfolio in units
or attached to securities may be deemed to be without value. Neither the Fund
nor the Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
RISKS OF CONCENTRATION
The following information as to certain Pennsylvania considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Pennsylvania 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
Pennsylvania issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Pennsylvania continues, however, to have a greater percentage of
its workers employed in manufacturing than the national average, leaving the
economy somewhat cyclical and vulnerable to recessionary forces. During 1993,
manufacturing accounted for 18% of employment. As of May 1995, the unadjusted
unemployment rate for Pennsylvania and the United States was 5.7%. Per capita
income in Pennsylvania for 1993 of $21,352 was higher than the per capita income
of the United States of $20,817.
REVENUES AND EXPENDITURES. Pennsylvania utilizes the fund method of accounting.
The General Fund, the State's largest fund, receives all tax receipts, revenues,
federal grants and reimbursements that are not specified by law to be deposited
elsewhere. Debt service on all obligations, except those issued for highway
purposes or for the benefit of other special revenue funds, is payable from the
General Fund. The General Fund closed fiscal years ended June 30, 1992, June 30,
1993 and June 30, 1994 with fund balances of $87,455, $698,945 and $892,940,
respectively.
The Governor's fiscal year 1996 budget contains no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending will
increase 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million and projects a $3.2
million fiscal year-end unappropriated surplus. The state Tax Stabilization Fund
had a balance at March 31, 1995 of $65.3 million.
The Pennsylvania Constitution requires all proceeds of motor fuels taxes,
vehicle registration fees, license taxes, operators' license fees and other
excise taxes imposed on products used in motor transportation to be used
exclusively for construction, reconstruction, maintenance and repair of and
safety on highways and bridges and for the payment of debt service on
obligations incurred for such purposes. The Motor License Fund is the fund
through which such revenues are accounted for and expended.
The Motor License Fund ended fiscal year ended June 30, 1994 with an
unappropriated balance of $107.5 million on a budgetary basis. State revenue
collections for fiscal year 1995 are projected to increase slightly from fiscal
1994. The budget for fiscal year 1996 includes a 2.3% increase in appropriations
from the prior year. The unappropriated balance of the General Fund at June 30,
1995 is projected to be approximately $3 million on a budgetary basis.
PENNSYLVANIA DEBT. The current Constitutional provisions pertaining to the
Pennsylvania debt permit the issuance of the following types of debt: (i) debt
to suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years (this debt need not be approved by the electorate)
and (iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Total outstanding general obligation debt totalled $5,075.8 million as of
June 30, 1994, an increase of $37.0 million from June 30, 1993. In its current
debt financing plans, Pennsylvania is emphasizing infrastructure investment to
improve and rehabilitate existing capital facilities, such as water supply
systems, and to construct new facilities, such as flood control systems and
public buildings.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
outstanding, may not exceed in the aggregate 20% of the revenues estimated to
accrue to the appropriate fund in the fiscal year. The State is not permitted to
fund deficits between fiscal years with any form of debt. All year end deficit
balances must be funded within the succeeding fiscal year's budget.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years.
STATE-RELATED OBLIGATIONS. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of or revenues derived from the various projects
financed; it is not an obligation of the State. Some of these agencies, however,
are indirectly dependent on state appropriations. State-related agencies and
their outstanding debt as of December 31, 1994 include the Delaware River Joint
Toll Bridge Commission ($56.3 million), the Delaware River Port Authority
($233.9 million), the Pennsylvania Economic Development Financing Authority
($659.9 million), the Pennsylvania Energy Development Authority ($162.1
million), the Pennsylvania Higher Education Assistance Agency ($1,283.8
million), the Pennsylvania Higher Education Facilities Authority ($1,965.8
million), the Pennsylvania Industrial Development Authority ($357.3 million),
the Pennsylvania Infrastructure Investment Authority ($227.5 million), the
Pennsylvania Turnpike Commission ($1,252.6 million), the Philadelphia Regional
Port Authority ($63.9 million) and the State Public School Building Authority
($286.8 million).
The only obligations of state-created agencies in Pennsylvania which bear a
moral obligation of the state are those issued by the Pennsylvania Housing
Finance Agency, a state-created agency which provides housing for lower and
moderate income families in the state, which had $2,300 million of bonds and
notes outstanding, and the Hospitals and Higher Education Facilities Authority
of Philadelphia which issued $21.1 million in bonds in 1993.
LOCAL GOVERNMENT DEBT. Local government in Pennsylvania consists of numerous
individual units. Each unit is distinct and independent of other local units,
although they may overlap geographically.
There is extensive general legislation applying to local government. For
example, the Local Government Unit Debt Act provides for uniform debt limits for
local government units, including municipalities and school districts, and
prescribes methods of incurring, evidencing, securing and collecting debt. Under
the Local Government Unit Debt Act, the ability of Pennsylvania municipalities
and school districts to engage in general obligation borrowing without electoral
approval is generally limited by their recent revenue collection experience.
Generally such subdivisions can levy real property taxes unlimited as to rate or
amount to pay debt service on general obligation borrowings.
Municipalities may also issue revenue obligations without limit and without
affecting their general obligation borrowing capacity if the obligations are
projected to be paid solely from project revenues.
Municipal authorities and industrial development authorities are widespread
in Pennsylvania. An authority is organized by a municipality acting singly or
jointly with another municipality and is governed by a board appointed by the
governing unit of the creating municipality or municipalities. Typically,
authorities are established to acquire, own and lease or operate one or more
projects and to borrow money and issue revenue bonds to finance them.
As of the date of this Statement of Additional Information, the City of
Philadelphia's general obligations are rated Ba, B and BB, by Moody's, S&P and
Fitch, respectively.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $502,250,304. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$2,416,419 (equivalent to 0.48% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $2,054,802 (equivalent to 0.46% (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 $1,300,484 (equivalent to 0.46%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended July 31, 1995 and for the period from the start of business, June 1,
1994, to the fiscal year ended July 31, 1994, $15,522 and $763, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be continued
as described under "Service Plan" in Part I of this Statement of Additional
Information. The Trustees have initially implemented the Plan by authorizing the
Fund to make quarterly service fee payments to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed .20% of the Fund's average
daily net assets for any fiscal year based on the value of Fund shares sold by
such persons and remaining outstanding for at least twelve months. During the
fiscal year ended July 31, 1995, the Fund made service fee payments under the
Plan aggregating $56, which amount was paid to Authorized Firms.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, total sales charges of $58,444 were
paid on sales of Fund shares. All of such amount was paid to Authorized Firms.
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $17.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $850 and the
Portfolio paid no custodian fees to IBT.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 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 July 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 funds in the Eaton Vance fund complex(1): COMPENSATION
COMPENSATION TOTAL COMPENSATION
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $3,994(2) $135,000(4)
Samuel L. Hayes, III ...... 0 3,955(3) 150,000(5)
Norton H. Reamer .......... 0 3,922 135,000
John L. Thorndike ......... 0 4,043 140,000
Jack L. Treynor ........... 0 4,154 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $988 of deferred compensation.
(3) Includes $1,209 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) 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 January 8, 1991 through July 31, 1995 and for the one year period
ended July 31, 1995. The total return for the period prior to the Fund's
commencement of operations on June 1, 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.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ----------------------------------------------------------
PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund+ 1/8/91 $962.39 $1,317.22 36.87% 7.13% 31.72% 6.23%
1 Year
Ended
7/31/95+ 7/31/94 $962.64 $1,014.78 5.41% 5.41% 1.48% 1.48%
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.
- ----------
* Initial investment less the current maximum sales charge of 3.75%.
+ 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 July 31, 1995, the yield of the Fund was
5.46%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.46% would be 8.92%, assuming a
combined federal and State tax rate of 37.99%. 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 July 31, 1995 and based on the
Fund's monthly distribution paid July 31, 1995) was 5.64%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.79%. 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 33.9%
Aa or AA 13.2
A 28.5
Baa or BBB 15.7
Ba or BB 0.3
B --
Below B --
Not rated 8.4
-----
Total 100.0%
The following compares the taxable equivalent yield of an investment in the
Fund yielding a hypothetical 6.0% with the after-tax yield of a certificate of
deposit yielding 3.25%. The tax brackets used are the combined federal and
Pennsylvania income tax brackets for 1995. The tax brackets for Pennsylvania
residents subject to Pennsylvania income tax and Pennsylvania county personal
property tax are 23.05% for single filers with taxable income up to $23,350 and
joint filers up to $39,000, 34.82% for single filers with taxable income from
$23,351 to $56,550 and joint filers from $39,001 to $94,250, 37.53% for single
filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 42.06% for single filers with taxable income from $117,951
to $256,500 and joint filers from $143,601 to $256,500; and 45.32% for single
and joint filers with taxable income over $256,000. The applicable federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. These brackets reflect the Pennsylvania county
personal property tax ($.40 per $100 in value) expressed as a percentage of an
investment yielding 6.0%, as well as Pennsylvania income tax (2.80%) and federal
income tax. The tax brackets used in calculating the after-tax yield of the
certificate of deposit are 17.38%, 30.02%, 32.93%, 37.79% and 41.29% and do not
reflect the Pennsylvania county personal property tax as bank deposits are
generally exempt from such tax.
The tax brackets used in calculating the taxable equivalent of a
hypothetical 6.0% yield of the Fund for individuals who reside in Philadelphia
are 27.26%, 38.39%, 40.95%, 45.23% and 48.31%. These brackets reflect the
Pennsylvania county personal property tax ($.40 per $100 in value) expressed as
a percentage of an investment yielding 6.0%, the City of Philadelphia school
district investment income tax of 4.96%, and federal and Pennsylvania state
income taxes. The tax brackets used in calculating the after-tax yield of the
certificate of deposit are 17.38%, 30.02%, 32.93%, 37.79% and 41.29% over the
same ranges of income. Bank deposits are generally exempt from the Pennsylvania
county personal property tax and Philadelphia school district income tax.
All of the above tax brackets assume that state and local taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize, or who
are subject to phaseout of personal exemptions or limitation on the
deductibility of itemized deductions may have higher tax brackets than indicated
above. Investors should consult with their tax advisers for more information
prior to investing in the Fund.
<TABLE>
<CAPTION>
For taxpayers subject to Philadelphia income tax:
TAX BRACKET
27.26% 38.39% 40.95% 45.23% 48.31%
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ............................ 6.00% 6.00% 6.00% 6.00% 6.00%
Taxable equivalent ........................ 8.25 9.74 10.16 10.96 11.61
TAX BRACKET*
17.38% 30.02% 32.93% 37.79% 41.29%
------------------------------------------------------------------
Certificates of deposit:
Yield ................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ......................... 2.69 2.27 2.18 2.02 1.91
<CAPTION>
For taxpayers not subject to Philadelphia income tax:
TAX BRACKET
23.05% 34.82% 37.53% 42.06% 45.32%
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ............................ 6.00% 6.00% 6.00% 6.00% 6.00%
Taxable equivalent ........................ 7.80 9.20 9.60 10.36 10.97
TAX BRACKET*
17.38% 30.02% 32.93% 37.79% 41.29%
------------------------------------------------------------------
Certificates of deposit:
Yield ................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ......................... 2.69 2.27 2.18 2.02 1.91
* Bank CDs are exempt from the Pennsylvania county personal property tax and Philadelphia school district income
tax. Accordingly, the combined tax brackets applicable to after-tax yields are 17.38%, 30.02%, 32.93%, 37.79%
and 41.29%.
</TABLE>
The following are illustrations of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 6.0%. The illustrations also quantify the federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a hypothetical tax free investment yielding 6.0%, and
compare the after-tax return of such investments. The charts are based on
3-month bank CDs (sources: The Wall Street Journal and Eaton Vance Management).
(The tax bracket used in calculating the CD after-tax yield is 37.79%, as bank
CDs are generally exempt from Pennsylvania county personal property tax and
Philadelphia school district income tax.) These illustrations are not meant to
imply or predict any future rate of return for the Fund. See your financial
adviser for the Fund's current yield and actual CD rates.
The Tax Free Yield Advantage: Philadelphia Residents
(45.23% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
6.00% Tax free investment
10.96% Taxable equivalent yield
6.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 6.00% Tax free
Pretax income: $3,250.00 $6,000.00
Tax: (1,228.18) NONE
After-tax income: $2,021.82 $6,000.00
The Tax Free Yield Advantage: Excluding Philadelphia Residents
(42.06% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
6.00% Tax free investment
10.36% Taxable equivalent yield
6.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 6.00% Tax free
Pretax income: $3,250.00 $6,000.00
Tax: (1,228.18) NONE
After-tax income: $2,021.82 $6,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields may be included in advertisements and other material
supplied to present and prospective shareholders.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995,BHC Securities Inc., Philadelphia, PA and Merrill
Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ were the record owners of
approximately 30.11% and 5.61%, respectively, of the outstanding shares, which
were held on behalf of their customers who are the benficial owners of such
shares, and as to which they 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: Charles J. Venango & Margaret Venango JTWROS,
Feasterville, PA (5.24%); Donaldson Lufkin Jenrette, Jersey City, NJ (5.17%) and
Marion Forman, Wynnewood, PA (5.16%). To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Traditional Pennsylvania Tax Free Fund to EV Traditional
Pennsylvania Municipals Fund on December 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 Pennsylvania State and local tax laws in effect for 1995. It gives the
approximate yield a taxable security must earn at various income brackets to
produce after-tax yields equivalent to those of tax exempt bonds yielding 6%.
<TABLE>
<CAPTION>
TAXABLE YIELD NEEDED TO MATCH 6% FREE OF
-----------------------------------------------------------
FEDERAL, STATE, FEDERAL, STATE,
1994 TAXABLE INCOME FEDERAL FEDERAL, STATE COUNTY AND COUNTY AND
- ---------------------------------------- FEDERAL STATE AND STATE AND COUNTY PHILADELPHIA PITTSBURGH
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES TAXES TAXES(1) TAXES(2)
- ------------------- ------------------- ---------- ---------- --------- -------------- --------------- ---------------
<C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 2.80% 7.26% 7.80% 8.25% 9.14%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 28.00 2.80 8.57 9.20 9.74 10.79
$ 56,551 - $117,950 $ 94,251 - $143,600 31.00 2.80 8.95 9.60 10.16 11.26
$117,951 - $256,500 $143,601 - $256,500 36.00 2.80 9.65 10.36 10.96 12.14
Over $256,500 Over $256,500 39.60 2.80 10.22 10.97 11.61 12.87
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Equivalent yields are based on a fixed $1,000 investment with all taxes deducted
from income. Included in all areas are the effects of: federal income tax minus
savings from itemizing state and local taxes, a 2.80% Pennsylvania income tax
and a 4 mill county personal property tax. (1) Philadelphia equivalent yields
also include the 4.96% school income tax. (2) Pittsburgh equivalent yields also
include 4 mill city and 4 mill school property taxes. While it is expected that
the Portfolio will invest primarily in obligations exempt from taxes, other
income received by the Fund may be taxable. Yields shown are for illustration
purposes only and are not meant to represent the Fund's actual yield.
Note: The above-indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions (including
Pennsylvania State and local taxes) for taxpayers with Adjusted Gross Income in
excess of $114,700. The tax brackets and taxable equivalent yields 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 federal tax brackets and equivalent
taxable yields of such taxpayers will be higher than those indicated above. In
addition, the equivalent taxable yields for investors who do not itemize will be
higher than indicated above.
Of course, no assurance can be given that EV Traditional Pennsylvania 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 Pennsylvania State and local
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. 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 the federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
EV TRADITIONAL
MUNICIPAL
FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1995
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND
EV TRADITIONAL NEW JERSEY MUNICIPALS FUND
EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 24 Federal Street, Boston, MA 02110
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
[LOGO]
EATON VANCE
================
MUTUAL FUNDS
T-C12/1SAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
INCLUDED IN PART A FOR THE FUNDS LISTED BELOW ARE "FINANCIAL
HIGHLIGHTS" FOR THE PERIOD FROM THE START OF BUSINESS TO THE
FISCAL YEAR ENDED JULY 31, 1995:
EV Classic Arizona Tax Free Fund (start of business December 13,
1993)
EV Classic Colorado Tax Free Fund (start of business December 10,
1993)
EV Classic Connecticut Tax Free Fund (start of business December
9, 1993)
EV Classic Michigan Tax Free Fund (start of business December 7,
1993)
EV Classic Minnesota Tax Free Fund (start of business December 9,
1993)
EV Classic New Jersey Tax Free Fund (start of business December 3,
1993)
EV Classic Pennsylvania Tax Free Fund (start of business December
3, 1993)
EV Classic Texas Tax Free Fund (start of business December 8,
1993)
EV Marathon Arizona Tax Free Fund (start of business July 25,
1991)
EV Marathon Colorado Tax Free Fund (start of business August 25,
1992)
EV Marathon Connecticut Tax Free Fund (start of business May 1,
1992)
EV Marathon Michigan Tax Free Fund (start of business April 19,
1991)
EV Marathon Minnesota Tax Free Fund (start of business July 29,
1991)
EV Marathon New Jersey Tax Free Fund (start of business January 8,
1991)
EV Marathon Pennsylvania Tax Free Fund (start of business January
8, 1991)
EV Marathon Texas Tax Free Fund (start of business March 2, 1992)
EV Traditional Connecticut Tax Free Fund (start of business April
19, 1994)
EV Traditional New Jersey Tax Free Fund (start of business April
13, 1994)
EV Traditional Pennsylvania Tax Free Fund (start of business June
1, 1994)
INCLUDED IN PART B:
INCORPORATED BY REFERENCE TO THE ANNUAL REPORTS FOR THE FUNDS,
EACH DATED JULY 31, 1995, FILED ELECTRONICALLY PURSUANT TO
SECTION 30(B)(2) OF THE INVESTMENT COMPANY ACT OF 1940
(ACCESSION NO. 0000950135-95-001994 FOR THE CLASSIC FUNDS,
ACCESSION NO. 0000950135-95-001995 FOR THE MARATHON FUNDS AND
ACCESSION NO. 0000950135-95-002074 FOR THE TRADITIONAL FUNDS)
ARE THE FOLLOWING:
<TABLE>
<CAPTION>
For:
<S> <C>
EV Classic Arizona Tax Free Fund EV Marathon Arizona Tax Free Fund
EV Classic Colorado Tax Free Fund EV Marathon Colorado Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Marathon Connecticut Tax Free Fund
EV Classic Michigan Tax Free Fund EV Marathon Michigan Tax Free Fund
EV Classic Minnesota Tax Free Fund EV Marathon Minnesota Tax Free Fund
EV Classic New Jersey Tax Free Fund EV Marathon New Jersey Tax Free Fund
EV Classic Pennsylvania Tax Free Fund EV Marathon Pennsylvania Tax Free Fund
EV Classic Texas Tax Free Fund EV Marathon Texas Tax Free Fund
EV Traditional Connecticut Tax Free Fund
EV Traditional New Jersey Tax Free Fund
EV Traditional Pennsylvania Tax Free Fund
</TABLE>
The Financial Statements for the above-referenced Funds for the
time periods set forth in the Funds' Annual Reports dated July
31, 1995 include:
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
The Financial Statements for the Arizona, Colorado, Connecticut,
Michigan, Minnesota, New Jersey, Pennsylvania and Texas Tax Free
Portfolios for the time periods set forth in the Funds' Annual
Reports dated July 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 Auditors' Report
(B) EXHIBITS:
(1)(a) Amended and Restated Declaration of Trust of Eaton Vance
Municipals Trust dated January 11, 1993, filed as Exhibit
(1)(a) to Post-Effective Amendment No. 55 and incorporated
herein by reference.
(b) Amendment and Restatement of Establishment and Designation
of Series dated June 19, 1995 filed as Exhibit (1)(b) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(2)(a) By-Laws as amended October 21, 1987 filed as Exhibit (2)(a)
to Post-Effective Amendment No. 55 and incorporated herein
by reference.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust dated
December 13, 1993 filed as Exhibit (2)(b) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(3) Not applicable
(4) Not applicable
(5) Not applicable
(6)(a)(1) Amended Distribution Agreement between Eaton Vance
Municipals Trust (on behalf of its Classic series) and
Eaton Vance Distributors, Inc. with attached schedules
(including Amended Schedule A dated September 29, 1995)
filed as Exhibit (6)(a)(1) to Post-Effective Amendment No.
55 and incorporated herein by reference.
(2) Amended Distribution Agreement between Eaton Vance
Municipals Trust (on behalf of its Marathon series) and
Eaton Vance Distributors, Inc. with attached schedules
(including Amended Schedule A dated September 29, 1995)
filed as Exhibit (6)(a)(2) to Post-Effective Amendment No.
55 and incorporated herein by reference.
(3) Amended Distribution Agreement between Eaton Vance
Municipals Trust (on behalf of its Traditional series) and
Eaton Vance Distributors, Inc. with attached schedules
(including Amended Schedule A dated September 29, 1995)
filed as Exhibit (6)(a)(3) to Post-Effective Amendment No.
55 and incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors,
Inc. and Authorized Dealers filed as Exhibit (6)(b) to
Post-Effective Amendment No. 59 to the Registration
Statement of Eaton Vance Growth Trust (File Nos. 2-22019,
811-1241) and incorporated herein by reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as
Exhibit (6)(c) to Post- Effective Amendment No. 59 to the
Registration Statement of Eaton Vance Growth Trust (File
Nos. 2-22019, 811-1241) and incorporated herein by
reference.
(7) The Securities and Exchange Commission has granted the
Registrant an exemptive order that permits the Registrant
to enter into deferred compensation arrangements with its
independent Trustees. See in the Matter of Capital Exchange
Fund, Inc., Release No. IC-20671 (November 1, 1994).
(8)(a) Custodian Agreement with Investors Bank & Trust Company
dated October 15, 1992 filed as Exhibit (8) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amendment to Custodian Agreement with Investors Bank &
Trust Company dated October 23, 1995 filed herewith.
(9)(a) Amended Administrative Services Agreement between Eaton
Vance Municipals Trust (on behalf of each of its series)
and Eaton Vance Management with attached schedules
(including Amended Schedule A dated September 29, 1995)
filed 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 Arizona Tax Free Fund, EV Classic Colorado Tax Free
Fund, EV Classic Connecticut Tax Free Fund, EV Classic
Michigan Tax Free Fund, EV Classic Minnesota Tax Free Fund,
EV Classic New Jersey Tax Free Fund, EV Classic
Pennsylvania Tax Free Fund and EV Classic Texas Tax Free
Fund filed herewith.
(b) Consent of Independent Certified Public Accountants for EV
Marathon Arizona Tax Free Fund, EV Marathon Colorado Tax
Free Fund, EV Marathon Connecticut Tax Free Fund, EV
Marathon Michigan Tax Free Fund, EV Marathon Minnesota Tax
Free Fund, EV Marathon New Jersey Tax Free Fund, EV
Marathon Pennsylvania Tax Free Fund and EV Marathon Texas
Tax Free Fund filed herewith.
(c) Consent of Independent Certified Public Accountants for EV
Traditional Connecticut Tax Free Fund, EV Traditional New
Jersey Tax Free Fund and EV Traditional Pennsylvania 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 31, 1995
EV Marathon Alabama Tax Free Fund 2,081
EV Classic Alabama Tax Free Fund 75
EV Marathon Arizona Tax Free Fund 3,177
EV Classic Arizona Tax Free Fund 51
EV Marathon Arkansas Tax Free Fund 2,234
EV Classic Arkansas Tax Free Fund 19
EV Marathon California Municipals Fund 7,904
EV Classic California Municipals Fund 37
EV Marathon Colorado Tax Free Fund 1,201
EV Classic Colorado Tax Free Fund 94
EV Marathon Connecticut Tax Free Fund 4,674
EV Classic Connecticut Tax Free Fund 95
EV Marathon Florida Tax Free Fund 14,054
EV Classic Florida Tax Free Fund 61
EV Marathon Georgia Tax Free Fund 2,956
EV Classic Georgia Tax Free Fund 61
EV Marathon Kentucky Tax Free Fund 3,686
EV Classic Kentucky Tax Free Fund 32
EV Marathon Louisiana Tax Free Fund 608
EV Classic Louisiana Tax Free Fund 38
EV Marathon Maryland Tax Free Fund 3,198
EV Classic Maryland Tax Free Fund 48
EV Marathon Massachusetts Tax Free Fund 7,309
EV Classic Massachusetts Tax Free Fund 52
EV Marathon Michigan Tax Free Fund 4,541
EV Classic Michigan Tax Free Fund 50
EV Marathon Minnesota Tax Free Fund 2,703
EV Classic Minnesota Tax Free Fund 84
EV Marathon Mississippi Tax Free Fund 714
EV Classic Mississippi Tax Free Fund 46
EV Marathon Missouri Tax Free Fund 2,788
EV Classic Missouri Tax Free Fund 112
EV Marathon National Municipals Fund 44,965
EV Classic National Municipals Fund 782
EV Marathon New Jersey Tax Free Fund 11,173
EV Classic New Jersey Tax Free Fund 102
EV Marathon New York Tax Free Fund 15,696
EV Classic New York Tax Free Fund 143
EV Marathon North Carolina Tax Free Fund 4,805
EV Classic North Carolina Tax Free Fund 105
EV Marathon Ohio Tax Free Fund 7,908
EV Classic Ohio Tax Free Fund 54
EV Marathon Oregon Tax Free Fund 3,838
EV Classic Oregon Tax Free Fund 51
EV Marathon Pennsylvania Tax Free Fund 14,273
EV Classic Pennsylvania Tax Free Fund 98
EV Marathon Rhode Island Tax Free Fund 849
EV Classic Rhode Island Tax Free Fund 40
EV Marathon South Carolina Tax Free Fund 1,411
EV Classic South Carolina Tax Free Fund 24
EV Marathon Tennessee Tax Free Fund 1,601
EV Classic Tennessee Tax Free Fund 23
EV Marathon Texas Tax Free Fund 461
EV Classic Texas Tax Free Fund 5
EV Marathon Virginia Tax Free Fund 5,120
EV Classic Virginia Tax Free Fund 40
EV Marathon West Virginia Tax Free Fund 1,214
EV Classic West Virginia Tax Free Fund 24
Massachusetts Municipal Bond Portfolio 37
EV Traditional California Municipals Fund 42
EV Traditional Connecticut Tax Free Fund 34
EV Traditional Florida Tax Free Fund 90
EV Traditional National Municipals Fund 593
EV Traditional New Jersey Tax Free Fund 74
EV Traditional New York Tax Free Fund 122
EV Traditional Pennsylvania Tax Free Fund 49
ITEM 27. INDEMNIFICATION
No change from the original filing has been made.
Registrant's Trustees and officers are insured under a standard mutual fund
errors and omissions insurance policy covering incurred by reason of negligent
errors and omissions committed in their capacities as such.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the caption "Investment
Adviser and Administrator" in the Statements of Additional Information, which
information is incorporated herein by reference.
<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>
<CAPTION>
<S> <C>
EV Classic Alabama Tax Free Fund EV Classic Strategic Income Fund
EV Classic Arizona Tax Free Fund EV Classic South Carolina Tax Free Fund
EV Classic Arkansas Tax Free Fund EV Classic Special Equities Fund
EV Classic California Limited Maturity EV Classic Stock Fund
Tax Free Fund EV Classic Tennessee Tax Free Fund
EV Classic California Municipals Fund EV Classic Texas Tax Free Fund
EV Classic Colorado Tax Free Fund EV Classic Total Return Fund
EV Classic Connecticut Limited Maturity EV Classic Virginia Tax Free Fund
Tax Free Fund EV Classic West Virginia Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Marathon Alabama Tax Free Fund
EV Classic Florida Insured Tax Free Fund EV Marathon Arizona Limited Maturity
EV Classic Florida Limited Maturity Tax Free Fund
Tax Free Fund EV Marathon Arizona Tax Free Fund
EV Classic Florida Tax Free Fund EV Marathon Arkansas Tax Free Fund
EV Classic Georgia Tax Free Fund EV Marathon California Limited Maturity
EV Classic Government Obligations Fund Tax Free Fund
EV Classic Greater China Growth Fund EV Marathon California Municipals Fund
EV Classic Growth Fund EV Marathon Colorado Tax Free Fund
EV Classic Hawaii Tax Free Fund EV Marathon Connecticut Limited Maturity
EV Classic High Income Fund Tax Free Fund
EV Classic Information Age Fund EV Marathon Connecticut Tax Free Fund
EV Classic Investors Fund EV Marathon Emerging Markets Fund
EV Classic Kansas Tax Free Fund EV Marathon Florida Insured Tax Free Fund
EV Classic Kentucky Tax Free Fund EV Marathon Florida Limited Maturity
EV Classic Louisiana Tax Free Fund Tax Free Fund
EV Classic Maryland Tax Free Fund EV Marathon Florida Tax Free Fund
EV Classic Massachusetts Limited Maturity EV Marathon Georgia Tax Free Fund
Tax Free Fund EV Marathon Gold & Natural Resources Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Government Obligations Fund
EV Classic Michigan Limited Maturity EV Marathon Greater China Growth Fund
Tax Free Fund EV Marathon Greater India Fund
EV Classic Michigan Tax Free Fund EV Marathon Growth Fund
EV Classic Minnesota Tax Free Fund EV Marathon Hawaii Tax Free Fund
EV Classic Mississippi Tax Free Fund EV Marathon High Income Fund
EV Classic Missouri Tax Free Fund EV Marathon High Yield Municipals Fund
EV Classic National Limited Maturity Tax Free Fund EV Marathon Information Age Fund
EV Classic National Municipals Fund EV Marathon Investors Fund
EV Classic New Jersey Limited Maturity EV Marathon Kansas Tax Free Fund
Tax Free Fund EV Marathon Kentucky Tax Free Fund
EV Classic New Jersey Tax Free Fund EV Marathon Louisiana Tax Free Fund
EV Classic New York Limited Maturity EV Marathon Maryland Tax Free Fund
Tax Free Fund EV Marathon Massachusetts Limited Maturity
EV Classic New York Tax Free Fund Tax Free Fund
EV Classic North Carolina Tax Free Fund EV Marathon Massachusetts Tax Free Fund
EV Classic Ohio Limited Maturity Tax Free Fund EV Marathon Michigan Limited Maturity
EV Classic Ohio Tax Free Fund Tax Free Fund
EV Classic Oregon Tax Free Fund EV Marathon Michigan Tax Free Fund
EV Classic Pennsylvania Limited Maturity EV Marathon Minnesota Tax Free Fund
Tax Free Fund EV Marathon Mississippi Tax Free Fund
EV Classic Pennsylvania Tax Free Fund EV Marathon Missouri Tax Free Fund
EV Classic Rhode Island Tax Free Fund EV Marathon National Limited Maturity
EV Classic Senior Floating-Rate Fund Tax Free Fund
<PAGE>
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<F1> Vice President and Director Vice President and
Trustee
William M. Steul<F1> Vice President and Director None
Wharton P. Whitaker<F1> 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.<F1> 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<F1> Vice President None
Jeffrey Chernoff Vice President None
115 Concourse West
Bright Waters, New York
William A. Clemmer<F1> 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<F1> Vice President None
Brian Jacobs<F1> 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<F1> Senior Vice President None
Gregory B. Norris Vice President None
6 Halidon Court
Palm Beach Gardens, Florida
Thomas Otis<F1> 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.<F1> Vice President, None
Treasurer and Director
John P. Rynne<F1> Vice President None
George V.F. Schwab, Jr. Vice President None
9501 Hampton Oaks Lane
Charlotte, North Carolina
Cornelius J. Sullivan<F1> 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<F1> Senior Vice President None
Sue Wilder Vice President None
141 East 89th Street
New York, New York
<FN>
- ----------
<F1> 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,
First Data Investor Services Group, 53 State Street, Boston, MA 02104, with the
exception of certain corporate documents and portfolio trading documents which
are in the possession and custody, Eaton Vance Management, 24 Federal Street,
Boston, MA 02110. Registrant is informed that all applicable accounts, books and
documents required to be maintained by registered investment advisers are in the
custody and possession of Eaton Vance Management and Boston Management and
Research.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the latest annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and 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 10th day of November, 1995.
EATON VANCE MUNICIPALS TRUST
By /s/THOMAS J. FETTER
----------------------------------
THOMAS J. FETTER, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 1995
- ----------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-----------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Arizona 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 10th day of
November, 1995.
ARIZONA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 1995
- ----------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-----------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Colorado 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 10th day of
November, 1995.
COLORADO TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 1995
- ----------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-----------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Connecticut 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 10th day of
November, 1995.
CONNECTICUT TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 1995
- ----------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-----------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Michigan 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 10th day of
November, 1995.
MICHIGAN TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 1995
- ----------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-----------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Minnesota 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 10th day of
November, 1995.
MINNESOTA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 1995
- ----------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-----------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
New Jersey 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 10th day of
November, 1995.
NEW JERSEY TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 1995
- ----------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-----------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Pennsylvania 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 10th day of
November, 1995.
PENNSYLVANIA TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 1995
- ----------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-----------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
<PAGE>
SIGNATURES
Texas 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 10th day of November,
1995.
TEXAS TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, (Chief
/s/ THOMAS J. FETTER Executive Officer) November 10, 1995
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer November 10, 1995
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee November 10, 1995
- ----------------------------
DONALD R. DWIGHT
JAMES B. HAWKES* Trustee November 10, 1995
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee November 10, 1995
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee November 10, 1995
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee November 10, 1995
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee November 10, 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>
8b Amendment to Custodian Agreement with Investors Bank & Trust Company
dated October 23, 1995.
(10) Opinion of Counsel dated November 10, 1995.
(11)(a) Consent of Independent Certified Public Accountants for EV Classic
Arizona Tax Free Fund, EV Classic Colorado Tax Free Fund, EV Classic
Connecticut Tax Free Fund, EV Classic Michigan Tax Free Fund, EV
Classic Minnesota Tax Free Fund, EV Classic New Jersey Tax Free Fund,
EV Classic Pennsylvania Tax Free Fund and EV Classic Texas Tax Free
Fund.
(b) Consent of Independent Certified Public Accountants for EV Marathon
Arizona Tax Free Fund, EV Marathon Colorado Tax Free Fund, EV Marathon
Connecticut Tax Free Fund, EV Marathon Michigan Tax Free Fund, EV
Marathon Minnesota Tax Free Fund, EV Marathon New Jersey Tax Free
Fund, EV Marathon Pennsylvania Tax Free Fund and EV Marathon Texas Tax
Free Fund.
(c) Consent of Independent Certified Public Accountants for EV Traditional
Connecticut Tax Free Fund, EV Traditional New Jersey Tax Free Fund and
EV Traditional Pennsylvania Tax Free Fund.
(16) Schedules for Computation of Performance Quotations.
</TABLE>
EXHIBIT 8(b)
AMENDMENT TO
MASTER CUSTODIAN AGREEMENT
BETWEEN
EATON VANCE GROUP OF FUNDS
AND
INVESTORS BANK & TRUST COMPANY
This Amendment, dated as of October 23, 1995, is made to the MASTER
CUSTODIAN AGREEMENT (the "Agreement") between each investment company for which
Eaton Vance Management acts as investment adviser or administrator which has
adopted the Agreement (the "Funds") and Investors Bank & Trust Company (the
"Custodian") pursuant to Section 10 of the Agreement.
The Funds and the Custodian agree that Section 10 of the Agreement shall,
as of October 23, 1995, be amended to read as follows:
Unless otherwise defined herein, terms which are defined in the Agreement
and used herein are so used as so defined.
10. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated by either party after August 31, 2000
by an instrument in writing delivered or mailed, postage prepaid to the other
party, such termination to take effect not sooner than sixty (60) days after the
date of such delivery or mailing; provided, that the Fund may at any time by
action of its Board, (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian in the event the
Custodian assigns this Agreement to another party without consent of the
noninterested Trustees of the Funds, or (ii) immediately terminate this
Agreement in the event of the appointment of a conservator or receiver for the
Custodian by the Federal Deposit Insurance Corporation or by the Banking
Commissioner of The Commonwealth of Massachusetts or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction. Upon termination of the Agreement, the Fund shall pay to
the Custodian such compensation as may be due as of the date of such termination
(and shall likewise reimburse the Custodian for its costs, expenses and
disbursements).
This Agreement may be amended at any time by the written agreement of the
parties hereto. If a majority of the non-interested trustees of any of the Funds
determines that the performance of the Custodian has been unsatisfactory or
adverse to the interests of shareholders of any Fund or Funds or that the terms
of the Agreement are no longer consistent with publicly available industry
standards, then the Fund or Funds shall give written notice to the Custodian of
such determination and the Custodian shall have 60 days to (1) correct such
performance to the satisfaction of the non-interested trustees or (2)
renegotiate terms which are satisfactory to the non-interested trustees of the
Funds. If the conditions of the preceding sentence are not met then the Fund or
Funds may terminate this Agreement on sixty (60) days written notice.
<PAGE>
The Board of the Fund shall, forthwith, upon giving or receiving
notice of termination of this Agreement, appoint as successor custodian, a bank
or trust company having the qualifications required by the Investment Company
Act of 1940 and the Rules thereunder. The Bank, as Custodian, Agent or
otherwise, shall, upon termination of the Agreement, deliver to such successor
custodian, all securities then held hereunder and all funds or other properties
of the Fund deposited with or held by the Bank hereunder and all books of
account and records kept by the Bank pursuant to this Agreement, and all
documents held by the Bank relative thereto. In the event that no written order
designating a successor custodian shall have been delivered to the Bank on or
before the date when such termination shall become effective, then the Bank
shall not deliver the securities, funds and other properties of the Fund to the
Fund but shall have the right to deliver to a bank or trust company doing
business in Boston, Massachusetts of its own selection meeting the above
required qualifications, all funds, securities and properties of the Fund held
by or deposited with the Bank, and all books of account and records kept by the
Bank pursuant to this Agreement, and all documents held by the Bank relative
thereto. Thereafter such bank or trust company shall be the successor of the
Custodian under this Agreement.
Except as expressly provided herein, the Agreement shall remain unchanged
and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
CAPITAL EXCHANGE FUND, INC. EATON VANCE MUNICIPALS TRUST II
DEPOSITORS FUND OF BOSTON, INC. EATON VANCE MUTUAL FUNDS TRUST
DIVERSIFICATION FUND, INC. EATON VANCE PRIME RATE RESERVES
EATON VANCE EQUITY-INCOME TRUST EATON VANCE SPECIAL INVESTMENT TRUST
EATON VANCE GROWTH TRUST EV CLASSIC SENIOR FLOATING-RATE FUND
EATON VANCE INVESTMENT FUND, INC. FIDUCIARY EXCHANGE FUND, INC.
EATON VANCE INVESTMENT TRUST SECOND FIDUCIARY EXCHANGE FUND, INC.
EATON VANCE MUNICIPAL BOND FUND L.P. THE EXCHANGE FUND OF BOSTON, INC.
EATON VANCE MUNICIPALS TRUST VANCE, SANDERS EXCHANGE FUND
By: /s/James L. O'Connor
----------------------------------------
Treasurer
INVESTORS BANK & TRUST COMPANY
By: /s/Michael F. Rogers
----------------------------------------
a:\custamend.fnd
Eaton Vance Management
24 Federal Street
Boston, MA 02110
EXHIBIT 10
November 13, 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, 8,004,512 of its
shares of beneficial interest with Post-Effective Amendment No. 57 to its
Registration Statement on Form N-1A (the "Amendment") with the Securities and
Exchange Commission.
I have examined originals, or copies, certified or otherwise identified
to my satisfaction, of such certificates, records and other documents as I have
deemed necessary or appropriate for the purpose of this opinion, including the
Declaration of Trust and votes adopted by the Trustees. Based upon the
foregoing, and with respect to Massachusetts law (other than the Massachusetts
Uniform Securities Act), only to the extent that Massachusetts law may be
applicable and without reference to the laws of the other several states or of
the United States of America, I am of the opinion that under existing law:
<PAGE>
Eaton Vance Municipals Trust
November 13, 1995
Page 2
1. The Trust is a trust with transferable shares of beneficial interest
organized in compliance with the laws of The Commonwealth of Massachusetts, and
the Declaration of Trust is legal and valid under the laws of The Commonwealth
of Massachusetts.
2. Shares of beneficial interest registered by the Amendment may be
legally and validly issued in accordance with the Declaration of Trust upon
receipt by the Trust of payment in compliance with the Declaration of Trust and,
when so issued and sold, will be fully paid and nonassessable by the Trust.
I am a member of the Massachusetts and New York bars, and I hereby
consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit thereto.
Very truly yours,
/s/ H. Day Brigham, Jr.
--------------------------------------
H. Day Brigham, Jr., Esq.
Vice President, Eaton Vance Management
HDB/EGW/drb
b:\munit.opn
EXHIBIT (11)(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 57 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Classic Arizona Tax Free Fund, EV Classic Colorado Tax
Free Fund, EV Classic Connecticut Tax Free Fund, EV Classic Michigan Tax Free
Fund, EV Classic Minnesota Tax Free Fund, EV Classic New Jersey Tax Free Fund,
EV Classic Pennsylvania Tax Free Fund and EV Classic Texas Tax Free Fund of
our report dated August 25, 1995, relating to EV Classic Arizona Tax Free
Fund, EV Classic Colorado Tax Free Fund, EV Classic Connecticut Tax Free Fund,
EV Classic Michigan Tax Free Fund, EV Classic Minnesota Tax Free Fund, EV
Classic New Jersey Tax Free Fund, EV Classic Pennsylvania Tax Free Fund and EV
Classic Texas Tax Free Fund, and of our report dated August 25, 1995, relating
to Arizona Tax Free Portfolio, Colorado Tax Free Portfolio, Connecticut Tax
Free Portfolio, Michigan Tax Free Portfolio, Minnesota Tax Free Portfolio, New
Jersey Tax Free Portfolio, Pennsylvania Tax Free Portfolio and Texas Tax Free
Portfolio, which reports are included in the Annual Report to Shareholders for
the year ended July 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 Funds'
Financial Highlights" in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
DELOITTE & TOUCHE LLP
November 10, 1995
Boston, Massachusetts
EXHIBIT (11)(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 57 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Marathon Arizona Tax Free Fund, EV Marathon Colorado Tax
Free Fund, EV Marathon Connecticut Tax Free Fund, EV Marathon Michigan Tax Free
Fund, EV Marathon Minnesota Tax Free Fund, EV Marathon New Jersey Tax Free Fund,
EV Marathon Pennsylvania Tax Free Fund and EV Marathon Texas Tax Free Fund, of
our report dated August 25, 1995, relating to EV Marathon Arizona Tax Free Fund,
EV Marathon Colorado Tax Free Fund, EV Marathon Connecticut Tax Free Fund, EV
Marathon Michigan Tax Free Fund, EV Marathon Minnesota Tax Free Fund, EV
Marathon New Jersey Tax Free Fund, EV Marathon Pennsylvania Tax Free Fund and EV
Marathon Texas Tax Free Fund, and of our report dated August 25, 1995, relating
to Arizona Tax Free Portfolio, Colorado Tax Free Portfolio, Connecticut Tax Free
Portfolio, Michigan Tax Free Portfolio, Minnesota Tax Free Portfolio, New Jersey
Tax Free Portfolio, Pennsylvania Tax Free Portfolio and Texas Tax Free
Portfolio, which reports are included in the Annual Report to Shareholders for
the year ended July 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 Funds'
Financial Highlights" in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
DELOITTE & TOUCHE LLP
November 10, 1995
Boston, Massachusetts
EXHIBIT (11)(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 57 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Traditional Connecticut Tax Free Fund, EV Traditional New
Jersey Tax Free Fund and EV Traditional Pennsylvania Tax Free Fund, of our
report dated August 25, 1995, relating to EV Traditional Connecticut Tax Free
Fund, EV Traditional New Jersey Tax Free Fund and EV Traditional Pennsylvania
Tax Free Fund, and of our report dated August 31, 1995, relating to
Connecticut Tax Free Portfolio, New Jersey Tax Free Portfolio and Pennsylvania
Tax Free Portfolio, which reports are included in the Annual Report to
Shareholders for the year ended July 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 Funds'
Financial Highlights" in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
DELOITTE & TOUCHE LLP
November 10, 1995
Boston, Massachusetts
Exhibit 16
INVESTMENT PERFORMANCE -- EV CLASSIC ARIZONA 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 25, 1991 through July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 07/25/91 $1,341.37 $1,341.37 34.14% 7.58% 34.14% 7.58%
1 YEAR ENDED
07/31/95 07/31/94 $1,064.39 $1,054.39 6.44% 6.44% 5.44% 5.44%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.63% and was calculated by annualizing
the most recent dividend distribution ($0.038575360) and dividing the result by
the current maximum offering price ($9.51).
The effective distribution rate as of 07/31/95 was 4.73% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV CLASSIC ARIZONA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $12,103
Plus Dividend Income Earned:
----------
Equal Gross Income: $12,103
Minus Expenses: $2,980
----------
Equal Net Investment Income: $9,123
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 257,263
----------
Equal Net Investment Income Earned Per Share: $0.0355
Net Asset Value Per Share 7/31/95: $9.51
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 34.59%: 0.6541
----------
Equal Tax Equivalent Yield***: 6.91%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0355/$9.51)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Arizona tax rate of 34.59%
<PAGE>
Exhibit 16
EV CLASSIC ARIZONA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $12,103
Plus Dividend Income Earned:
----------
Equal Gross Income: $12,103
Minus Expenses: $2,980
----------
Equal Net Investment Income: $9,123
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 257,263
----------
Equal Net Investment Income Earned Per Share: $0.0355
Maximum Offering Price Per Share 7/31/95: $9.51
30 Day Yield*: 4.52%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0355/$9.51)+1)-1]
<PAGE>
Exhibit 16
INVESTMENT PERFORMANCE -- EV CLASSIC COLORADO 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 July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/25/92 $1,174.45 $1,174.45 17.45% 5.64% 17.45% 5.64%
1 YEAR ENDED
07/31/95 07/31/94 $1,058.88 $1,048.88 5.89% 5.89% 4.89% 4.89%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.80% and was calculated by annualizing
the most recent dividend distribution ($0.038838368) and dividing the result by
the current maximum offering price ($9.23).
The effective distribution rate as of 07/31/95 was 4.91% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV CLASSIC COLORADO TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $9,829
Plus Dividend Income Earned:
----------
Equal Gross Income: $9,829
Minus Expenses: $2,031
----------
Equal Net Investment Income: $7,798
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 212,129
----------
Equal Net Investment Income Earned Per Share: $0.0368
Net Asset Value Per Share 7/31/95: $9.23
30 Day Yield*: 4.83%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 7.00%
Divided by one minus a tax rate of 34.45%: 0.6555
---------
Equal Tax Equivalent Yield***: 7.37%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0368/$9.23)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Colorado tax rate of 34.45%
<PAGE>
Exhibit 16
EV CLASSIC COLORADO TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $9,829
Plus Dividend Income Earned:
----------
Equal Gross Income: $9,829
Minus Expenses: $2,031
----------
Equal Net Investment Income: $7,798
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 212,129
----------
Equal Net Investment Income Earned Per Share: $0.0368
Maximum Offering Price Per Share 7/31/95: $9.23
30 Day Yield*: 4.83%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0368/$9.23)+1)-1]
<PAGE>
Exhibit 16
INVESTMENT PERFORMANCE -- EV CLASSIC CONNECTICUT 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 July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $1,196.15 $1,196.15 19.62% 5.67% 19.62% 5.67%
1 YEAR ENDED
07/31/95 07/31/94 $1,044.87 $1,034.95 4.49% 4.49% 3.50% 3.50%
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<F1>
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<F2>
P = an initial investment of $1,000
<FN>
<F1> The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
<F2> The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.77% and was calculated by annualizing
the most recent dividend distribution ($0.038400000) and dividing the result by
the current maximum offering price ($9.18).
The effective distribution rate as of 07/31/95 was 4.88% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV CLASSIC CONNECTICUT TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $22,897
Plus Dividend Income Earned:
----------
Equal Gross Income: $22,897
Minus Expenses: $5,524
----------
Equal Net Investment Income: $17,373
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 501,210
----------
Equal Net Investment Income Earned Per Share: $0.0347
Net Asset Value Per Share 7/31/95: $9.18
30 Day Yield*: 4.57%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 6.62%
Divided by one minus a tax rate of 34.11%: 0.6589
---------
Equal Tax Equivalent Yield***: 6.94%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0347/$9.18)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Connecticut tax rate of 34.11%
<PAGE>
Exhibit 16
EV CLASSIC CONNECTICUT TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $22,897
Plus Dividend Income Earned:
----------
Equal Gross Income: $22,897
Minus Expenses: $5,524
----------
Equal Net Investment Income: $17,373
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 501,210
----------
Equal Net Investment Income Earned Per Share: $0.0347
Maximum Offering Price Per Share 7/31/95: $9.18
30 Day Yield*: 4.57%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0347/$9.18)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV CLASSIC MICHIGAN TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from April 19, 1991 through July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/19/91 $1,306.77 $1,306.77 30.68% 6.44% 30.68% 6.44%
1 YEAR ENDED
07/31/95 07/31/94 $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<F1>
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<F2>
P = an initial investment of $1,000
<FN>
<F1> The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
<F2> The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.57% and was calculated by annualizing
the most recent dividend distribution ($0.037084960) and dividing the result by
the current maximum offering price ($9.26).
The effective distribution rate as of 07/31/95 was 4.66% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV CLASSIC MICHIGAN TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $22,321
Plus Dividend Income Earned:
----------
Equal Gross Income: $22,321
Minus Expenses: $6,814
----------
Equal Net Investment Income: $15,507
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 490,262
----------
Equal Net Investment Income Earned Per Share: $0.0316
Net Asset Value Per Share 7/31/95: $9.26
30 Day Yield*: 4.13%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 5.99%
Divided by one minus a tax rate of 36.54%: 0.6346
----------
Equal Tax Equivalent Yield***: 6.30%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0316/$9.26)+1) -1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Michigan tax rate of 36.54%
<PAGE>
Exhibit 16
EV CLASSIC MICHIGAN TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $22,321
Plus Dividend Income Earned:
----------
Equal Gross Income: $22,321
Minus Expenses: $6,814
----------
Equal Net Investment Income: $15,507
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 490,262
----------
Equal Net Investment Income Earned Per Share: $0.0316
Maximum Offering Price Per Share 7/31/95: $9.26
30 Day Yield*: 4.13%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0316/$9.26)+1) -1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV CLASSIC MINNESOTA 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 29, 1991 through July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 07/29/91 $1,261.98 $1,261.98 26.20% 5.97% 26.20% 5.97%
1 YEAR ENDED
07/31/95 07/31/94 $1,044.46 $1,034.53 4.45% 4.45% 3.45% 3.45%
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<F1>
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<F2>
P = an initial investment of $1,000
<FN>
<F1> The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
<F2> The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.75% and was calculated by annualizing
the most recent dividend distribution ($0.038750688) and dividing the result by
the current maximum offering price ($9.30).
The effective distribution rate as of 07/31/95 was 4.86% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV CLASSIC MINNESOTA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $18,476
Plus Dividend Income Earned:
----------
Equal Gross Income: $18,476
Minus Expenses: $4,471
----------
Equal Net Investment Income: $14,005
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 396,224
----------
Equal Net Investment Income Earned Per Share: $0.0353
Net Asset Value Per Share 7/31/95: $9.30
30 Day Yield*: 4.60%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.67%
Divided by one minus a tax rate of 36.87%: 0.6313
----------
Equal Tax Equivalent Yield***: 7.29%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0353/$9.30)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Minnesota tax rate of 36.87%
<PAGE>
Exhibit 16
EV CLASSIC MINNESOTA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $18,476
Plus Dividend Income Earned:
----------
Equal Gross Income: $18,476
Minus Expenses: $4,471
----------
Equal Net Investment Income: $14,005
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 396,224
----------
Equal Net Investment Income Earned Per Share: $0.0353
Maximum Offering Price Per Share 7/31/95: $9.30
30 Day Yield*: 4.60%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0353/$9.30)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV CLASSIC NEW JERSEY 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 January 8, 1991 through July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 01/08/91 $1,352.10 $1,352.10 35.21% 6.84% 35.21% 6.84%
1 YEAR ENDED
07/31/95 07/31/94 $1,052.00 $1,042.02 5.20% 5.20% 4.20% 4.20%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.92% and was calculated by annualizing
the most recent dividend distribution ($0.040065760) and dividing the result by
the current maximum offering price ($9.28).
The effective distribution rate as of 07/31/95 was 5.04% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV CLASSIC NEW JERSEY TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $17,150
Plus Dividend Income Earned:
-------
Equal Gross Income: $17,150
Minus Expenses: $4,073
-------
Equal Net Investment Income: $13,077
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 358,118
-------
Equal Net Investment Income Earned Per Share: $0.0365
Net Asset Value Per Share 7/31/95: $9.27
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 35.54% 0.6696
------
Equal Tax Equivalent Yield***: 7.12%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0365/$9.27)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and New Jersey tax rate of 35.54%
<PAGE>
Exhibit 16
EV CLASSIC NEW JERSEY TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $17,150
Plus Dividend Income Earned:
-------
Equal Gross Income: $17,150
Minus Expenses: $4,073
-------
Equal Net Investment Income: $13,077
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 358,118
-------
Equal Net Investment Income Earned Per Share: $0.0365
Maximum Offering Price Per Share 7/31/95: $9.27
30 Day Yield*: 4.77%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0365/$9.27)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV CLASSIC PENNSYLVANIA 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 January 8, 1991 through July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 01/08/91 $1,334.07 $1,334.07 33.41% 6.52% 33.41% 6.52%
1 YEAR ENDED
07/31/95 07/31/94 $1,053.98 $1,043.98 5.40% 5.40% 4.40% 4.40%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.88% and was calculated by annualizing
the most recent dividend distribution ($0.039276736) and dividing the result by
the current maximum offering price ($9.18).
The effective distribution rate as of 07/31/95 was 4.99% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
[/TABLE]
<PAGE>
Exhibit 16
EV CLASSIC PENNSYLVANIA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $13,544
Plus Dividend Income Earned:
----------
Equal Gross Income: $13,544
Minus Expenses: $3,149
----------
Equal Net Investment Income: $10,395
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 288,253
----------
Equal Net Investment Income Earned Per Share: $0.0361
Net Asset Value Per Share 7/31/95: $9.18
30 Day Yield*: 4.76%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 6.90%
Divided by one minus a tax rate of 38.73%: 0.6127
----------
Equal Tax Equivalent Yield***: 7.77%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0361/$9.18)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Pennsylvania tax rate of 38.73%
<PAGE>
Exhibit 16
EV CLASSIC PENNSYLVANIA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $13,544
Plus Dividend Income Earned:
----------
Equal Gross Income: $13,544
Minus Expenses: $3,149
----------
Equal Net Investment Income: $10,395
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 288,253
----------
Equal Net Investment Income Earned Per Share: $0.0361
Maximum Offering Price Per Share 7/31/95: $9.18
30 Day Yield*: 4.76%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0361/$9.18)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV CLASSIC TEXAS 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 March 24, 1992 through July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/24/92 $1,222.46 $1,222.46 22.25% 6.16% 22.25% 6.16%
1 YEAR ENDED
07/31/95 07/31/94 $1,051.56 $1,041.60 5.16% 5.16% 4.16% 4.16%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 5.09% and was calculated by annualizing
the most recent dividend distribution ($0.041030144) and dividing the result by
the current maximum offering price ($9.19).
The effective distribution rate as of 07/31/95 was 5.21% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
[/TABLE]
<PAGE>
Exhibit 16
EV CLASSIC TEXAS TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $2,221
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,221
Minus Expenses: $440
----------
Equal Net Investment Income: $1,781
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 50,865
----------
Equal Net Investment Income Earned Per Share: $0.0350
Net Asset Value Per Share 7/31/95: $9.22
30 Day Yield*: 4.60%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.67%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0350/$9.22)+1)-1]
**Assuming a tax rate of 31%
<PAGE>
Exhibit 16
EV CLASSIC TEXAS TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $2,221
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,221
Minus Expenses: $440
----------
Equal Net Investment Income: $1,781
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 50,865
----------
Equal Net Investment Income Earned Per Share: $0.0350
Maximum Offering Price Per Share 7/31/95: $9.22
30 Day Yield*: 4.60%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0350/$9.22)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON ARIZONA 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 25, 1991 through July 31, 1995 and for the 1 year period
ended July 31, 1995.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 07/25/91 $1,353.52 $1,333.52 35.35% 7.82% 33.35% 7.42%
1 YEAR ENDED
07/31/95 07/31/94 $1,066.36 $1,016.36 6.64% 6.64% 1.64% 1.64%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.70% and was calculated by annualizing
the most recent dividend distribution ($0.043397280) and dividing the result by
the current maximum offering price ($10.53).
The effective distribution rate as of 07/31/95 was 4.80% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV MARATHON ARIZONA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $712,972
Plus Dividend Income Earned:
----------
Equal Gross Income: $712,972
Minus Expenses: $181,235
----------
Equal Net Investment Income: $531,737
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 13,532,131
----------
Equal Net Investment Income Earned Per Share: $0.0393
Net Asset Value Per Share 7/31/95: $10.53
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 34.59%: 0.6541
----------
Equal Tax Equivalent Yield***: 6.91%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0393/$10.53)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Arizona tax rate of 34.59%
<PAGE>
Exhibit 16
EV MARATHON ARIZONA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $712,972
Plus Dividend Income Earned:
----------
Equal Gross Income: $712,972
Minus Expenses: $181,235
----------
Equal Net Investment Income: $531,737
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 13,532,131
----------
Equal Net Investment Income Earned Per Share: $0.0393
Maximum Offering Price Per Share 7/31/95: $10.53
30 Day Yield*: 4.52%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0393/$10.53)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON COLORADO 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 July 31, 1995 and for the 1 year period
ended July 31, 1995.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/25/92 $1,172.15 $1,132.15 17.22% 5.57% 13.22% 4.33%
1 YEAR ENDED
07/31/95 07/31/94 $1,055.75 $1,005.75 5.57% 5.57% 0.57% 0.57%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.97% and was calculated by annualizing
the most recent dividend distribution ($0.043660288) and dividing the result by
the current maximum offering price ($10.02).
The effective distribution rate as of 07/31/95 was 5.08% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
[/TABLE]
<PAGE>
Exhibit 16
EV MARATHON COLORADO TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $224,858
Plus Dividend Income Earned:
----------
Equal Gross Income: $224,858
Minus Expenses: $48,168
----------
Equal Net Investment Income: $176,690
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 4,420,557
----------
Equal Net Investment Income Earned Per Share: $0.0400
Net Asset Value Per Share 7/31/95: $10.02
30 Day Yield*: 4.83%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 7.00%
Divided by one minus a tax rate of 34.45%: 0.6555
----------
Equal Tax Equivalent Yield***: 7.38%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0400/$10.02)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Colorado tax rate of 34.45%
<PAGE>
Exhibit 16
EV MARATHON COLORADO TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $224,858
Plus Dividend Income Earned:
--------
Equal Gross Income: $224,858
Minus Expenses: $48,168
--------
Equal Net Investment Income: $176,690
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 4,420,557
---------
Equal Net Investment Income Earned Per Share: $0.0400
Maximum Offering Price Per Share 7/31/95: $10.02
30 Day Yield*: 4.83%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0400/$10.02)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON CONNECTICUT 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 July 31, 1995 and for the 1 year period
ended July 31, 1995.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $1,189.77 $1,159.86 18.98% 5.49% 15.99% 4.67%
1 YEAR ENDED
07/31/95 07/31/94 $1,045.46 $995.86 4.55% 4.55% -0.41% -0.41%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.89% and was calculated by annualizing
the most recent dividend distribution ($0.042783584) and dividing the result by
the current maximum offering price ($9.97).
The effective distribution rate as of 07/31/95 was 5.01% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV MARATHON CONNECTICUT TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $949,223
Plus Dividend Income Earned:
----------
Equal Gross Income: $949,223
Minus Expenses: $233,040
----------
Equal Net Investment Income: $716,183
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 19,003,424
----------
Equal Net Investment Income Earned Per Share: $0.0377
Net Asset Value Per Share 7/31/95: $9.97
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 34.11%: 0.6589
----------
Equal Tax Equivalent Yield***: 6.95%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0377/$9.97)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Connecticut tax rate of 34.11%
<PAGE>
Exhibit 16
EV MARATHON CONNECTICUT TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $949,223
Plus Dividend Income Earned:
----------
Equal Gross Income: $949,223
Minus Expenses: $233,040
----------
Equal Net Investment Income: $716,183
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 19,003,424
----------
Equal Net Investment Income Earned Per Share: $0.0377
Maximum Offering Price Per Share 7/31/95: $9.97
30 Day Yield*: 4.58%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0377/$9.97)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON MICHIGAN TAX FREE FUND
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the period from April 19, 1991 through July 31, 1995 and for the 1 year period
ended July 31, 1995.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/19/91 $1,318.06 $1,298.06 31.81% 6.65% 29.81% 6.27%
1 YEAR ENDED
07/31/95 07/31/94 $1,056.07 $1,006.07 5.61% 5.61% 0.61% 0.61%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.83% and was calculated by annualizing
the most recent dividend distribution ($0.043397280) and dividing the result by
the current maximum offering price ($10.25).
The effective distribution rate as of 07/31/95 was 4.94% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
[/TABLE]
<PAGE>
Exhibit 16
EV MARATHON MICHIGAN TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $922,657
Plus Dividend Income Earned:
----------
Equal Gross Income: $922,657
Minus Expenses: $238,608
----------
Equal Net Investment Income: $684,049
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 18,230,551
----------
Equal Net Investment Income Earned Per Share: $0.0375
Net Asset Value Per Share 7/31/95: $10.25
30 Day Yield*: 4.43%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 6.42%
Divided by one minus a tax rate of 36.54%: 0.6346
----------
Equal Tax Equivalent Yield***: 6.98%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0375/$10.25)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Michigan tax rate of 36.54%
<PAGE>
Exhibit 16
EV MARATHON MICHIGAN TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $922,657
Plus Dividend Income Earned:
----------
Equal Gross Income: $922,657
Minus Expenses: $238,608
----------
Equal Net Investment Income: $684,049
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 18,230,551
----------
Equal Net Investment Income Earned Per Share: $0.0375
Maximum Offering Price Per Share 7/31/95: $10.25
30 Day Yield*: 4.43%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0375/$10.25)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON MINNESOTA 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 29, 1991 through July 31, 1995 and for the 1 year period
ended July 31, 1995.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 07/29/91 $1,246.31 $1,226.41 24.63% 5.64% 22.64% 5.22%
1 YEAR ENDED
07/31/95 07/31/94 $1,044.13 $994.58 4.41% 4.41% -0.54% -0.54%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.89% and was calculated by annualizing
the most recent dividend distribution ($0.042695904) and dividing the result by
the current maximum offering price ($9.95).
The effective distribution rate as of 07/31/95 was 5.01% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV MARATHON MINNESOTA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $400,890
Plus Dividend Income Earned:
----------
Equal Gross Income: $400,890
Minus Expenses: $101,283
----------
Equal Net Investment Income: $299,607
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 7,968,620
----------
Equal Net Investment Income Earned Per Share: $0.0376
Net Asset Value Per Share 7/31/95: $9.95
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 36.87%: 0.6313
----------
Equal Tax Equivalent Yield***: 7.24%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0376/$9.95)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Minnesota tax rate of 36.87%
<PAGE>
Exhibit 16
EV MARATHON MINNESOTA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $400,890
Plus Dividend Income Earned:
----------
Equal Gross Income: $400,890
Minus Expenses: $101,283
----------
Equal Net Investment Income: $299,607
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 7,968,620
----------
Equal Net Investment Income Earned Per Share: $0.0376
Maximum Offering Price Per Share 7/31/95: $9.95
30 Day Yield*: 4.58%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0376/$9.95)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON NEW JERSEY 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 January 8, 1991 through July 31, 1995 and for the 1 year period
ended July 31, 1995.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 01/08/91 $1,360.21 $1,340.21 36.02% 6.98% 34.02% 6.63%
1 YEAR ENDED
07/31/95 07/31/94 $1,050.41 $1,000.65 5.04% 5.04% 0.06% 0.06%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 5.02% and was calculated by annualizing
the most recent dividend distribution ($0.045589056) and dividing the result by
the current maximum offering price ($10.36).
The effective distribution rate as of 07/31/95 was 5.14% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV MARATHON NEW JERSEY TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $2,114,329
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,114,329
Minus Expenses: $513,788
----------
Equal Net Investment Income: $1,600,541
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 39,198,461
----------
Equal Net Investment Income Earned Per Share: $0.0408
Net Asset Value Per Share 7/31/95: $10.36
30 Day Yield*: 4.78%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 6.93%
Divided by one minus a tax rate of 35.54% 0.6446
----------
Equal Tax Equivalent Yield***: 7.42%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0408/$10.36)+1)-1]
**Assuming a tax rate of 31%
*** Assuming a combined federal and New Jersey tax rate of 35.54%
<PAGE>
Exhibit 16
EV MARATHON NEW JERSEY TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $2,114,329
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,114,329
Minus Expenses: $513,788
----------
Equal Net Investment Income: $1,600,541
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 39,198,461
----------
Equal Net Investment Income Earned Per Share: $0.0408
Maximum Offering Price Per Share 7/31/95: $10.36
30 Day Yield*: 4.78%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0408/$10.36)+1)-1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON PENNSYLVANIA 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 January 8, 1991 through July 31, 1995 and for the 1 year period
ended July 31, 1995.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 01/08/91 $1,354.80 $1,334.80 35.48% 6.89% 33.48% 6.54%
1 YEAR ENDED
07/31/95 07/31/94 $1,052.39 $1,002.49 5.24% 5.24% 0.25% 0.25%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 4.94% and was calculated by annualizing
the most recent dividend distribution ($0.044712352) and dividing the result by
the current maximum offering price ($10.32).
The effective distribution rate as of 07/31/95 was 5.05% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV MARATHON PENNSYLVANIA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $2,575,675
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,575,675
Minus Expenses: $628,900
----------
Equal Net Investment Income: $1,946,775
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 48,301,824
----------
Equal Net Investment Income Earned Per Share: $0.0403
Net Asset Value Per Share 7/31/95: $10.32
30 Day Yield*: 4.73%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 6.86%
Divided by one minus a tax rate of 38.76%: 0.6124
----------
Equal Tax Equivalent Yield***: 7.72%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0403/$10.32)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Pennsylvania tax rate of 38.76%
<PAGE>
Exhibit 16
EV MARATHON PENNSYLVANIA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $2,575,675
Plus Dividend Income Earned:
----------
Equal Gross Income: $2,575,675
Minus Expenses: $628,900
----------
Equal Net Investment Income: $1,946,775
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 48,301,824
----------
Equal Net Investment Income Earned Per Share: $0.0403
Maximum Offering Price Per Share 7/31/95: $10.32
30 Day Yield*: 4.73%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0403/$10.32)+1)-1]
<PAGE>
Exhibit 16
INVESTMENT PERFORMANCE -- EV MARATHON TEXAS 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 March 24, 1992 through July 31, 1995 and for the 1 year period
ended July 31, 1995.
<TABLE>
<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 07/31/95 ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/24/92 $1,243.71 $1,213.71 24.37% 6.71% 21.37% 5.93%
1 YEAR ENDED
07/31/95 07/31/94 $1,063.58 $1,013.58 6.36% 6.36% 1.36% 1.36%
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.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 5.12% and was calculated by annualizing
the most recent dividend distribution ($0.046115072) and dividing the result by
the current maximum offering price ($10.28).
The effective distribution rate as of 07/31/95 was 5.24% and was calculated by
dividing the distribtion rate by the compounding period (365/32), 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:
(365/32)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/32))+1] - 1
<PAGE>
Exhibit 16
EV MARATHON TEXAS TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $138,662
Plus Dividend Income Earned:
----------
Equal Gross Income: $138,662
Minus Expenses: $31,201
----------
Equal Net Investment Income: $107,461
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 2,703,060
----------
Equal Net Investment Income Earned Per Share: $0.0398
Net Asset Value Per Share 7/31/95: $10.28
30 Day Yield*: 4.69%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 6.80%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0398/$10.28)+1)-1]
**Assuming a tax rate of 31%
<PAGE>
Exhibit 16
EV MARATHON TEXAS TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $138,662
Plus Dividend Income Earned:
----------
Equal Gross Income: $138,662
Minus Expenses: $31,201
----------
Equal Net Investment Income: $107,461
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 2,703,060
----------
Equal Net Investment Income Earned Per Share: $0.0398
Maximum Offering Price Per Share 7/31/95: $10.28
30 Day Yield*: 4.69%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0398/$10.28)+1)-1]
<PAGE>
Exhibit 16
INVESTMENT PERFORMANCE -- EV TRADITIONAL CONNECTICUT 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 July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $962.76 $1,160.72 20.56% 5.92% 16.07% 4.69%
1 YEAR ENDED
07/31/95 07/31/94 $962.82 $1,019.56 5.89% 5.89% 1.96% 1.96%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
*Initial investment less the current maximum sales charge of 3.75%.
**The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
***The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 5.49% and was calculated by annualizing
the most recent dividend distribution ($0.048835633) and dividing the result by
the current maximum offering price ($10.48).
The effective distribution rate as of 07/31/95 was 5.63% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
Exhibit 16
EV TRADITIONAL CONNECTICUT TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $5,264
Plus Dividend Income Earned:
----------
Equal Gross Income: $5,264
Minus Expenses: $461
----------
Equal Net Investment Income: $4,803
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 106,803
----------
Equal Net Investment Income Earned Per Share: $0.0450
Net Asset Value Per Share 7/31/95: $10.48
30 Day Yield*: 5.21%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 7.55%
Divided by one minus a tax rate of 34.11%: 0.6589
----------
Equal Tax Equivalent Yield***: 7.91%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0450/$10.48)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Connecticut tax rate of 34.11%
<PAGE>
Exhibit 16
EV TRADITIONAL CONNECTICUT TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $5,264
Plus Dividend Income Earned:
----------
Equal Gross Income: $5,264
Minus Expenses: $461
----------
Equal Net Investment Income: $4,803
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 106,803
----------
Equal Net Investment Income Earned Per Share: $0.0450
Maximum Offering Price Per Share 7/31/95: $10.48
30 Day Yield*: 5.21%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0450/$10.48)+1)-1]
<PAGE>
Exhibit 16
INVESTMENT PERFORMANCE -- EV TRADITIONAL NEW JERSEY 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 January 8, 1991 through July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 01/08/91 $962.06 $1,331.56 38.42% 7.39% 33.16% 6.48%
1 YEAR ENDED
07/31/95 07/31/94 $962.24 $1,025.94 6.62% 6.62% 2.59% 2.59%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
*Initial investment less the current maximum sales charge of 3.75%.
**The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
***The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 5.69% and was calculated by annualizing
the most recent dividend distribution ($0.050109609) and dividing the result by
the current maximum offering price ($10.37).
The effective distribution rate as of 07/31/95 was 5.84% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
Exhibit 16
EV TRADITIONAL NEW JERSEY TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $7,917
Plus Dividend Income Earned:
----------
Equal Gross Income: $7,917
Minus Expenses: $692
----------
Equal Net Investment Income: $7,225
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 154,840
----------
Equal Net Investment Income Earned Per Share: $0.0467
Net Asset Value Per Share 7/31/95: $10.37
30 Day Yield*: 5.46%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 7.91%
Divided by one minus a tax rate of 35.54%: 0.6446
----------
Equal Tax Equivalent Yield***: 8.47%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0467/$10.37)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and New Jersey tax rate of 35.54%
<PAGE>
Exhibit 16
EV TRADITIONAL NEW JERSEY TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $7,917
Plus Dividend Income Earned:
----------
Equal Gross Income: $7,917
Minus Expenses: $692
----------
Equal Net Investment Income: $7,225
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 154,840
----------
Equal Net Investment Income Earned Per Share: $0.0467
Maximum Offering Price Per Share 7/31/95: $10.37
30 Day Yield*: 5.46%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0467/$10.37)+1)-1]
<PAGE>
Exhibit 16
INVESTMENT PERFORMANCE -- EV TRADITIONAL PENNSYLVANIA 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 January 8, 1991 through July 31, 1995 and for the 1 year period
ended July 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 07/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 01/08/91 $962.39 $1,317.22 36.87% 7.13% 31.72% 6.23%
1 YEAR ENDED
07/31/95 07/31/94 $962.64 $1,014.78 5.41% 5.41% 1.48% 1.48%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
*Initial investment less the current maximum sales charge of 3.75%.
**The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
***The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 07/31/95 was 5.64% and was calculated by annualizing
the most recent dividend distribution ($0.049684940) and dividing the result by
the current maximum offering price ($10.37).
The effective distribution rate as of 07/31/95 was 5.79% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
Exhibit 16
EV TRADITIONAL PENNSYLVANIA TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 7/31/95:
Interest Income Earned: $7,338
Plus Dividend Income Earned:
----------
Equal Gross Income: $7,338
Minus Expenses: $614
----------
Equal Net Investment Income: $6,724
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 144,221
----------
Equal Net Investment Income Earned Per Share: $0.0466
Net Asset Value Per Share 7/31/95: $10.37
30 Day Yield*: 5.46%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield**: 7.91%
Divided by one minus a tax rate of 37.99%: 0.6201
----------
Equal Tax Equivalent Yield***: 8.81%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0466/$10.37)+1)-1]
**Assuming a tax rate of 31%
***Assuming a combined federal and Pennsylvania tax rate of 37.99%
<PAGE>
Exhibit 16
EV TRADITIONAL PENNSYLVANIA TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 7/31/95:
Interest Income Earned: $7,338
Plus Dividend Income Earned:
----------
Equal Gross Income: $7,338
Minus Expenses: $614
----------
Equal Net Investment Income: $6,724
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 144,221
----------
Equal Net Investment Income Earned Per Share: $0.0466
Maximum Offering Price Per Share 7/31/95: $10.37
30 Day Yield*: 5.46%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0466/$10.37)+1)-1]
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000778365
<NAME> EATON VANCE MUNICIPALS TRUST
<SERIES>
<NUMBER> 38
<NAME> EV CLASSIC ARIZONA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 2424
<INVESTMENTS-AT-VALUE> 2433
<RECEIVABLES> 28
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2468
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 3
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2597
<SHARES-COMMON-STOCK> 259
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (140)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8
<NET-ASSETS> 2465
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 174
<EXPENSES-NET> 32
<NET-INVESTMENT-INCOME> 142
<REALIZED-GAINS-CURRENT> (119)
<APPREC-INCREASE-CURRENT> 158
<NET-CHANGE-FROM-OPS> 181
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (142)
<DISTRIBUTIONS-OF-GAINS> (7)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 285
<NUMBER-OF-SHARES-REDEEMED> 294
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 54
<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> 51
<AVERAGE-NET-ASSETS> 3004
<PER-SHARE-NAV-BEGIN> 9.39
<PER-SHARE-NII> .432
<PER-SHARE-GAIN-APPREC> .142
<PER-SHARE-DIVIDEND> (.432)
<PER-SHARE-DISTRIBUTIONS> (.022)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.51
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000778365
<NAME> EATON VANCE MUNICIPALS TRUST
<SERIES>
<NUMBER> 50
<NAME> EV CLASSIC COLORADO TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 1912
<INVESTMENTS-AT-VALUE> 1951
<RECEIVABLES> 17
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1974
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 3
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2089
<SHARES-COMMON-STOCK> 214
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (157)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39
<NET-ASSETS> 1971
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 134
<EXPENSES-NET> 22
<NET-INVESTMENT-INCOME> 112
<REALIZED-GAINS-CURRENT> (138)
<APPREC-INCREASE-CURRENT> 125
<NET-CHANGE-FROM-OPS> 99
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (112)
<DISTRIBUTIONS-OF-GAINS> (3)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 132
<NUMBER-OF-SHARES-REDEEMED> 183
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> (371)
<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> 39
<AVERAGE-NET-ASSETS> 2228
<PER-SHARE-NAV-BEGIN> 9.18
<PER-SHARE-NII> .450
<PER-SHARE-GAIN-APPREC> .062
<PER-SHARE-DIVIDEND> (.450)
<PER-SHARE-DISTRIBUTIONS> (.012)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.23
<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000778365
<NAME> EATON VANCE MUNICIPALS TRUST
<SERIES>
<NUMBER> 48
<NAME> EV CLASSIC CONNECTICUT TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 4593
<INVESTMENTS-AT-VALUE> 4592
<RECEIVABLES> 22
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4622
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8
<TOTAL-LIABILITIES> 8
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4741
<SHARES-COMMON-STOCK> 503
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (7)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (119)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1)
<NET-ASSETS> 4614
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 220
<EXPENSES-NET> 37
<NET-INVESTMENT-INCOME> 183
<REALIZED-GAINS-CURRENT> (119)
<APPREC-INCREASE-CURRENT> 104
<NET-CHANGE-FROM-OPS> 168
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (183)
<DISTRIBUTIONS-OF-GAINS> (11)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 234
<NUMBER-OF-SHARES-REDEEMED> 96
<SHARES-REINVESTED> 17
<NET-CHANGE-IN-ASSETS> 1399
<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> 59
<AVERAGE-NET-ASSETS> 3854
<PER-SHARE-NAV-BEGIN> 9.25
<PER-SHARE-NII> .431
<PER-SHARE-GAIN-APPREC> (.044)
<PER-SHARE-DIVIDEND> (.431)
<PER-SHARE-DISTRIBUTIONS> (.026)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.18
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000778365
<NAME> EATON VANCE MUNICIPALS TRUST
<SERIES>
<NUMBER> 36
<NAME> EV CLASSIC MICHIGAN TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 4558
<INVESTMENTS-AT-VALUE> 4512
<RECEIVABLES> 13
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4532
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57
<TOTAL-LIABILITIES> 57
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4876
<SHARES-COMMON-STOCK> 483
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (354)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (46)
<NET-ASSETS> 4476
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 320
<EXPENSES-NET> 65
<NET-INVESTMENT-INCOME> 255
<REALIZED-GAINS-CURRENT> (240)
<APPREC-INCREASE-CURRENT> 256
<NET-CHANGE-FROM-OPS> 271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (255)
<DISTRIBUTIONS-OF-GAINS> (14)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 92
<NUMBER-OF-SHARES-REDEEMED> 323
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> (1891)
<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> 78
<AVERAGE-NET-ASSETS> 5420
<PER-SHARE-NAV-BEGIN> 9.22
<PER-SHARE-NII> .419
<PER-SHARE-GAIN-APPREC> .063
<PER-SHARE-DIVIDEND> (.419)
<PER-SHARE-DISTRIBUTIONS> (.023)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.26
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000778365
<NAME> EATON VANCE MUNICIPALS TRUST
<SERIES>
<NUMBER> 39
<NAME> EV CLASSIC MINNESOTA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 3600
<INVESTMENTS-AT-VALUE> 3660
<RECEIVABLES> 24
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3693
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 5
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3950
<SHARES-COMMON-STOCK> 397
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (1)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (321)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60
<NET-ASSETS> 3688
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 279
<EXPENSES-NET> 48
<NET-INVESTMENT-INCOME> 231
<REALIZED-GAINS-CURRENT> (305)
<APPREC-INCREASE-CURRENT> 308
<NET-CHANGE-FROM-OPS> 234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (231)
<DISTRIBUTIONS-OF-GAINS> (12)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 155
<NUMBER-OF-SHARES-REDEEMED> 295
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 1263
<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> 72
<AVERAGE-NET-ASSETS> 4785
<PER-SHARE-NAV-BEGIN> 9.37
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> (.048)
<PER-SHARE-DIVIDEND> (.44)
<PER-SHARE-DISTRIBUTIONS> (.022)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.30
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000778365
<NAME> EATON VANCE MUNICIPALS TRUST
<SERIES>
<NUMBER> 33
<NAME> EV CLASSIC NEW JERSEY TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 3296
<INVESTMENTS-AT-VALUE> 3285
<RECEIVABLES> 22
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3317
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3505
<SHARES-COMMON-STOCK> 357
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (4)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (182)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (11)
<NET-ASSETS> 3308
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 213
<EXPENSES-NET> 34
<NET-INVESTMENT-INCOME> 179
<REALIZED-GAINS-CURRENT> (169)
<APPREC-INCREASE-CURRENT> 150
<NET-CHANGE-FROM-OPS> 160
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (179)
<DISTRIBUTIONS-OF-GAINS> (10)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 155
<NUMBER-OF-SHARES-REDEEMED> 295
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> (410)
<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> 56
<AVERAGE-NET-ASSETS> 3572
<PER-SHARE-NAV-BEGIN> 9.30
<PER-SHARE-NII> .452
<PER-SHARE-GAIN-APPREC> .004
<PER-SHARE-DIVIDEND> (.452)
<PER-SHARE-DISTRIBUTIONS> (.024)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000778365
<NAME> EATON VANCE MUNICIPALS TRUST
<SERIES>
<NUMBER> 34
<NAME> EV CLASSIC PENNSYLVANIA TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 2780
<INVESTMENTS-AT-VALUE> 2636
<RECEIVABLES> 20
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2665
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44
<TOTAL-LIABILITIES> 44
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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