<PAGE>
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL NATIONAL MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUSES DATED NOVEMBER 25, 1994
EV TRADITIONAL FLORIDA TAX FREE FUND
EV TRADITIONAL NEW YORK TAX FREE FUND
SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 25, 1994
The Trustees of each Fund and the corresponding Portfolio have amended
the nonfundamental investment policy governing call options to read "neither the
Fund nor the Portfolio may engage in options, futures or forward transactions if
more than 5% of its net assets, as measured by the aggregate of the premiums
paid by the Fund or the Portfolio, would be so invested". THE FOLLOWING
DISCLOSURE IS ADDED TO THE SECTION "WHEN-ISSUED SECURITIES":
The Portfolio may also purchase instruments that give the
Portfolio the option to purchase a municipal obligation when and if
issued.
May 5, 1995 T-CPS
<PAGE>
EV MARATHON FLORIDA TAX FREE FUND
EV MARATHON MASSACHUSETTS TAX FREE FUND
EV MARATHON MISSISSIPPI TAX FREE FUND
EV MARATHON NEW YORK TAX FREE FUND
EV MARATHON OHIO TAX FREE FUND
EV MARATHON RHODE ISLAND TAX FREE FUND
EV MARATHON WEST VIRGINIA TAX FREE FUND
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1995
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV MARATHON NATIONAL MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUSES DATED FEBRUARY 1, 1995
The Trustees of each Fund and the corresponding Portfolio have amended
the nonfundamental investment policy governing call options to read "neither the
Fund nor the Portfolio may engage in options, futures or forward transactions if
more than 5% of its net assets, as measured by the aggregate of the premiums
paid by the Fund or the Portfolio, would be so invested". THE FOLLOWING
DISCLOSURE IS ADDED TO THE SECTION "WHEN-ISSUED SECURITIES":
The Portfolio may also purchase instruments that give the
Portfolio the option to purchase a municipal obligation when and if
issued.
May 5, 1995 M-CPS
<PAGE>
EV MARATHON TAX FREE FUNDS
EV MARATHON FLORIDA TAX FREE FUND
EV MARATHON MASSACHUSETTS TAX FREE FUND
EV MARATHON MISSISSIPPI TAX FREE FUND
EV MARATHON NEW YORK TAX FREE FUND
EV MARATHON OHIO TAX FREE FUND
EV MARATHON RHODE ISLAND TAX FREE FUND
EV MARATHON WEST VIRGINIA TAX FREE FUND
THE EV MARATHON TAX FREE 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 February 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., 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.
- --------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1995
<PAGE>
TABLE OF CONTENTS
Shareholder and Fund Expenses ............................................ 3
The Funds' Financial Highlights .......................................... 5
The Funds' Investment Objectives ......................................... 11
How the Funds and the Portfolios Invest their Assets ..................... 11
Organization of the Funds and the Portfolios ............................. 18
Management of the Funds and the Portfolios ............................... 20
Distribution Plans ....................................................... 22
Valuing Fund Shares ...................................................... 25
How to Buy Fund Shares ................................................... 26
How to Redeem Fund Shares ................................................ 27
Reports to Shareholders .................................................. 29
The Lifetime Investing Account/Distribution Options ...................... 29
The Eaton Vance Exchange Privilege ...................................... 30
Eaton Vance Shareholder Services ......................................... 31
Distributions and Taxes .................................................. 32
Performance Information .................................................. 33
Appendix -- State Specific Information ................................... 35
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES<F1>
- --------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
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)<F2> 5.00%-0%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
FLORIDA MASSACHUSETTS MISSISSIPPI
FUND<F4> FUND<F4> FUND
------- ------------- -----------
<S> <C> <C> <C>
Investment Adviser Fee (after any fee reduction)<F3> 0.46% 0.46% 0.00%<F5>
Rule 12b-1 Distribution (and Service) Fees 0.86 0.86 0.76
Other Expenses (after any expense reduction) 0.12 0.18 0.23<F5>
---- ---- ----
Total Operating Expenses 1.44% 1.50% 0.99%
==== ==== ====
<PAGE>
<CAPTION>
EXAMPLE
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming (a)
5% annual return and (b) redemption at the end of each period:
FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND
------- ------------- -----------
<S> <C> <C> <C>
1 Year ............................................................ $ 65 $ 65 $ 60
3 Years ............................................................ 86 87 72
5 Years ............................................................ 99 102 75
10 Years ............................................................ 172 179 121
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no
redemptions:
1 Year ............................................................ $ 15 $ 15 $ 10
3 Years ............................................................ 46 47 32
5 Years ............................................................ 79 82 55
10 Years ............................................................ 172 179 121
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND<F4> FUND<F4> FUND FUND
-------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any fee reduction)<F3> 0.46% 0.45% 0.00%<F6> 0.00%<F7>
Rule 12b-1 Distribution (and Service) Fees 0.87 0.86 0.76 0.76
Other Expenses (after any expense reduction) 0.13 0.19 0.26<F6> 0.19<F7>
--- --- --- ---
Total Operating Expenses 1.46% 1.50% 1.02% 0.95%
==== ==== ==== ====
<CAPTION>
EXAMPLE
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming (a) 5% annual
return and (b) redemption at the end of each period:
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------- ---- ------------ -------------
<S> <C> <C> <C> <C>
1 Year ............................................... $ 65 $ 65 $ 60 $ 60
3 Years ............................................... 86 87 72 70
5 Years ............................................... 100 102 76 73
10 Years ............................................... 175 179 125 117
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
1 Year ............................................... $ 15 $ 15 $ 10 $ 10
3 Years ............................................... 46 47 32 30
5 Years ............................................... 80 82 56 53
10 Years ............................................... 175 179 125 117
Notes:
<FN>
<F1>The purpose of the above tables and Examples is to summarize the aggregate expenses of the Funds and the Portfolios and to
assist investors in understanding the various costs and expenses that investors in each Fund will bear directly or indirectly.
The Trustees of the Trust believe that over time the aggregate per share expenses of a Fund and its corresponding Portfolio
should be approximately equal to the per share expenses which the Fund would incur if the Trust retained the services of an
investment adviser and the assets of the Fund were invested directly in the type of securities being held by its corresponding
Portfolio. The percentages indicated as Annual Fund and Allocated Portfolio Operating Expenses and the amounts included in the
Examples are based on the Funds' and their corresponding Portfolios' results for the fiscal year ended September 30, 1994. The
tables and Examples should not be considered a representation of past or future expenses and actual expenses may be greater or
less than those shown. For further information regarding the expenses of 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". Because the Funds make payments under their Distribution Plans adopted under Rule 12b-1, a long-term
shareholder may pay more than the economic equivalent of the maximum front-end sales charge permitted by a rule of the
National Association of Securities Dealers, Inc. See "Distribution Plans." 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".
<F2>No contingent deferred sales charge is imposed on (a) shares purchased more than six years prior to the redemption, (b) shares
acquired through the reinvestment of dividends and distributions and (c) any appreciation in value of other shares in the
account (see "How to Redeem Fund Shares"), and no such charge is imposed on exchanges of Fund shares for shares of one or more
other funds listed under "The Eaton Vance Exchange Privilege".
<F3>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 20.
<F4>The Florida, Massachusetts, New York and Ohio Funds transferred substantially all of their assets to their respective
Portfolios in exchange for an interest in such Portfolio as of the close of business January 29, 1993.
<F5>Absent a fee reduction and expense allocation, the Investment Adviser fee and Other Expenses would have been 0.19% and 0.50%,
respectively, of the Mississippi Fund's average daily net assets.
<F6>Absent a fee reduction and expense allocation, the Investment Adviser fee and Other Expenses would have been 0.21% and 0.41%,
respectively, of the Rhode Island Fund's average daily net assets.
<F7>Absent a fee reduction and expense allocation, the Investment Adviser fee and Other Expenses would have been 0.23% and 0.33%,
respectively, of the West Virginia Fund's average daily net assets.
</TABLE>
<PAGE>
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
The following information should be read in conjunction with the financial statements included in the Statement of Additional
Information, all of which has been so included in reliance upon reports of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information regarding the performance of 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.
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FLORIDA FUND
---------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
1994 1993 1992 1991 1990<F2>
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year ............. $ 11.700 $ 10.940 $ 10.690 $ 9.990 $10.000
-------- -------- -------- -------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ........................ $ 0.514 $ 0.516 $ 0.541 $ 0.573 $ 0.010
Net realized and unrealized gain (loss) on
investments ................................ (1.228) 1.040 0.434 0.838 (0.003)<F3>
------ ----- ----- ----- ------
Total income (loss) from operations ........ $ (0.714) $ 1.556 $ 0.975 $ 1.411 $ 0.007
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
From net investment income ................... $ (0.514) $ (0.516) $ (0.541) $ (0.573) $(0.010)
In excess of net investment income<F4>........ (0.082) (0.121) (0.127) (0.138) (0.007)
From net realized gain on investment
transactions ............................... -- (0.159) (0.057) -- --
In excess of net realized gain on investment
transactions ................................ (0.120) -- -- -- --
-------- -------- -------- -------- -------
Total distributions ........................ $ (0.716) $ (0.796) $ (0.725) $ (0.711) $(0.017)
-------- -------- -------- -------- -------
NET ASSET VALUE, end of year ................... $ 10.270 $ 11.700 $ 10.940 $ 10.690 $ 9.990
======== ======== ======== ======== =======
TOTAL RETURN<F5>................................ (6.34)% 14.85% 9.41% 14.45% (0.10)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) ........ $760,867 $776,856 $463,279 $233,021 $22,028
Ratio of net expenses to average daily net
assets<F6>.................................. 1.44% 1.53% 1.64% 1.56% 1.00%<F1>
Ratio of net investment income to average
daily net assets ........................... 4.70% 4.54% 4.91% 5.33% 1.36%<F1>
PORTFOLIO TURNOVER<F7>.......................... -- 9% 95% 72% 6%
*For the periods indicated, the operating expenses of each Fund reflect a reduction of expenses by the Administrator and/or the
Investment Adviser. Had such actions not been taken, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE ................ $ 0.561 $ 0.008
====== ======
RATIOS (As a percentage of average daily net assets):
Expenses<F6>................................ 1.67% 1.25%<F1>
Net investment income ...................... 5.22% 1.11%<F1>
<FN>
<F1>Computed on an annualized basis.
<F2>For the period from the start of business August 28, 1990 and August 30, 1990 to September 30, 1990 for the Florida and New
York Funds, respectively, for the period from the start of business April 18, 1991 to September 30, 1991 for the Massachusetts
and Ohio Funds, and for the period from the start of business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode
Island and West Virginia Funds.
<F3>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.
<F4>Distributions from paid-in-capital for the years ended September 30, 1990, 1991 and 1992 have been restated to conform with
the treatment permitted under current financial reporting standards.
<F5>Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the payable date.
<F6>Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7>Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS FUND
--------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1994 1993 1992 1991<F2>
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year .................... $11.250 $10.640 $10.250 $10.000
INCOME (LOSS) FROM OPERATIONS:
Net investment income ............................... $ 0.505 $ 0.514 $ 0.526 $ 0.245
Net realized and unrealized gain (loss)
on investments ..................................... (1.108) 0.784 0.556 0.305<F3>
------- ------- ------- -------
Total income (loss) from operations ............... $(0.603) $ 1.298 $ 1.082 $ 0.550
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income .......................... $(0.505) $(0.514) $(0.526) $(0.245)
In excess of net investment income<F4>............... (0.087) (0.116) (0.142) (0.055)
From net realized gain on investment transactions ... -- (0.058) (0.024) --
In excess of net realized gain on investment
transactions....................................... (0.065) -- -- --
------- ------- ------- -------
Total distributions................................ $(0.657) $(0.688) $(0.692) $(0.300)
------- ------- ------- -------
NET ASSET VALUE, end of year .......................... $ 9.990 $11.250 $10.640 $10.250
======= ======= ======= =======
TOTAL RETURN<F5>....................................... (5.57)% 12.67% 10.88% 5.33%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted)............... $295,011 $286,801 $165,964 $35,532
Ratio of net expenses to average daily net
assets<F6>......................................... 1.50% 1.58% 1.64% 1.28%<F1>
Ratio of net investment income to average
daily net assets .................................. 4.75% 4.69% 4.85% 5.15%<F1>
PORTFOLIO TURNOVER<F7>................................. -- 27% 72% 21%
*For the periods indicated, the operating expenses of each Fund reflect a reduction of expenses by the
Administrator and/or the Investment Adviser. Had such actions not been taken, net investment income per share and
the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE ..................... $ 0.226
======
RATIOS (As a percentage of average daily net assets):
Expenses<F3> ..................................... 1.68%<F1>
Net investment income ............................ 4.75%<F1>
Footnotes:
<FN>
<F1>Computed on an annualized basis.
<F2>For the period from the start of business August 28, 1990 and August 30, 1990 to September 30, 1990 for the Florida and New
York Funds, respectively, for the period from the start of business April 18, 1991 to September 30, 1991 for the Massachusetts
and Ohio Funds, and for the period from the start of business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode
Island and West Virginia Funds.
<F3>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.
<F4>Distributions from paid-in-capital for the years ended September 30, 1990, 1991 and 1992 have been restated to conform with
the treatment permitted under current financial reporting standards.
<F5>Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the payable date.
<F6>Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7>Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI FUND NEW YORK FUND
------------------------ ---------------------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
- -------------------------------------------------------------- ---------------------------------------------------------
1994 1993<F2> 1994 1993 1992 1991 1990<F2>
-------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year ................. $ 10.260 $ 10.000 $ 11.880 $ 11.070 $ 10.740 $ 9.950 $ 10.000
-------- -------- -------- -------- ------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ............. $ 0.453 $ 0.106 $ 0.528 $ 0.535 $ 0.553 $ 0.563 $ 0.014
Net realized and unrealized
gain (loss) on investments ...... (1.072) 0.300 (1.165) 1.014 0.524 0.929 (0.039)<F3>
-------- -------- -------- -------- ------- -------- --------
Total income (loss)
from operations................ $ (0.619) $ 0.406 $ (0.637) $ 1.549 $ 1.077 $ 1.492 $ (0.025)
-------- -------- -------- -------- ------- -------- ---------
LESS DISTRIBUTIONS:
From net investment income ........ $ (0.453) $ (0.106) $ (0.528) $ (0.535) $ (0.553) $ (0.563) $ (0.014)
In excess of net investment income<F1> (0.071) (0.040) (0.089) (0.120) (0.135) (0.139) (0.011)
From net realized gain on investment
transactions .................... -- -- -- (0.084) (0.059) -- --
In excess of net realized gain on
investment transactions ......... (0.007) -- (0.176) -- -- -- --
-------- -------- -------- -------- ------- -------- ---------
Total distributions ............. $ (0.531) $ (0.146) $ (0.793) $ (0.739) $ (0.747) $ (0.702) $ (0.025)
-------- -------- -------- -------- ------- -------- ---------
NET ASSET VALUE, end of year ........ $ 9.110 $ 10.260 $ 10.450 $ 11.880 $ 11.070 $ 10.740 $ 9.950
======== ========= ========= ======== ======== ======== =========
TOTAL RETURN<F5> .................... (6.20)% 3.85% (5.62)% 14.53% 10.41% 15.58% (0.50)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted)..................... $ 26,771 $ 11,810 $ 648,325 $650,361 $415,144 $161,037 $ 7,640
Ratio of net expenses to average
daily net assets<F6> ............. 0.99% 0.75%<F1> 1.46% 1.55% 1.65% 1.62% 1.00%<F1>
Ratio of net investment income to
average daily net assets ........ 4.63% 3.50%<F1> 4.72% 4.68% 4.99% 5.28% 1.18%<F1>
PORTFOLIO TURNOVER<F7> .............. -- -- -- 11% 57% 50% 0%
*For the periods indicated, the operating expenses of each Fund reflect a reduction of expenses by the Administrator and/or the
Investment Adviser. Had such actions not been taken, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE .... $ 0.407 $ 0.085 $ 0.556 $ 0.008
======= ======== ======= =======
RATIOS (As a percentage of average
daily net assets):
Expenses<F6> .................... 1.45% 1.44%<F1> 1.69% 1.52%<F1>
Net investment income ........... 4.17% 2.81%<F1> 5.21% 0.66%<F1>
<F1>Computed on an annualized basis.
<F2>For the period from the start of business August 28, 1990 and August 30, 1990 to September 30, 1990 for the Florida and New
York Funds, respectively, for the period from the start of business April 18, 1991 to September 30, 1991 for the Massachusetts
and Ohio Funds, and for the period from the start of business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode
Island and West Virginia Funds.
<F3>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.
<F4>Distributions from paid-in-capital for the years ended September 30, 1990, 1991 and 1992 have been restated to conform with
the treatment permitted under current financial reporting standards.
<F5>Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the payable date.
<F6>Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7>Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ---------------------------------------------------------------------------------------------------------------------------------
OHIO FUND RHODE ISLAND FUND
--------------------------------------------------------- --------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------- --------------------------
1994 1993 1992 1991<F2> 1994 1993<F2>
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year ......... $11.300 $10.550 $10.210 $10.000 $10.330 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income .................... $ 0.494 $ 0.499 $ 0.509 $ 0.245 $ 0.454 $ 0.113
Net realized and unrealized gain (loss) on
investments ............................ (1.081) 0.901 0.495 0.261<F3> (1.146) 0.361
------- ------- ------- ------- ------- -------
Total income (loss) from operations .... $(0.587) $ 1.400 $ 1.004 $ 0.506 $(0.692) $ 0.474
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ............... $(0.494) $(0.499) $(0.509) $(0.245) $(0.454) $(0.113)
In excess of net investment income<F4>.... (0.084) (0.118) (0.137) (0.051) (0.078) (0.008)
From net realized gain on investment
transactions ........................... -- (0.033) (0.018) -- -- (0.023)
In excess of net realized gain on
investment transactions ................ (0.065) -- -- (0.016) --
------- ------- ------- ------- ------- -------
Total distributions .................... $(0.643) $(0.650) $(0.664) $(0.296) $(0.548) $(0.144)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year ............... $10.070 $11.300 $10.550 $10.210 $ 9.090 $10.330
======= ======= ======= ======= ======= =======
TOTAL RETURN<F5> ............................ (5.39)% 13.74% 10.13% 4.88% (6.91)% 4.53%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) .... $321,578 $299,331 $164,400 $51,215 $34,261 $17,680
Ratio of net expenses to average daily
net assets<F6>.......................... 1.50% 1.58% 1.65% 1.47%<F1> 1.02% 0.75%<F1>
Ratio of net investment income to average
daily net assets ....................... 4.62% 4.57% 4.87% 5.04%<F1> 4.65% 3.70%<F1>
PORTFOLIO TURNOVER<F7>...................... -- 12% 40% 11% -- --
*For the periods indicated, the operating expenses of each Fund reflect a reduction of expenses by the Administrator and/or the
Investment Adviser. Had such action not been taken, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE ........... $ 0.243 $ 0.418 $ 0.096
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6>............................ 1.52%<F1> 1.38% 1.30%<F1>
Net investment income .................. 4.99%<F1> 4.29% 3.15%<F1>
Footnotes:
<FN>
<F1>Computed on an annualized basis.
<F2>For the period from the start of business August 28, 1990 and August 30, 1990 to September 30, 1990 for the Florida and New
York Funds, respectively, for the period from the start of business April 18, 1991 to September 30, 1991 for the Massachusetts
and Ohio Funds, and for the period from the start of business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode
Island and West Virginia Funds.
<F3>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.
<F4>Distributions from paid-in-capital for the years ended September 30, 1990, 1991 and 1992 have been restated to conform with
the treatment permitted under current financial reporting standards.
<F5>Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the payable date.
<F6>Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7>Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
WEST VIRGINIA FUND
---------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------
1994 1993<F1>
------- -------
<S> <C> <C>
NET ASSET VALUE, beginning of year ....................................................... $10.220 $10.000
------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income .................................................................. $ 0.450 $ 0.103
Net realized and unrealized gain (loss) on investments ................................ (1.011) 0.262
------- -------
Total income (loss) from operations .................................................. $(0.561) $ 0.365
------- -------
LESS DISTRIBUTIONS:
From net investment income ............................................................. $(0.450) $(0.103)
In excess of net investment income<F4> ................................................. (0.069) (0.042)
In excess of net realized gain on investment transactions .............................. -- --
In excess of net realized gain on investment transactions .............................. (0.010) --
------- -------
Total distributions .................................................................. $(0.529) $(0.145)
------- -------
NET ASSET VALUE, end of year ............................................................. $ 9.130 $10.220
======= =======
TOTAL RETURN<F5> ......................................................................... (5.66)% 3.47%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) .................................................. $38,476 $25,717
Ratio of net expenses to average daily net assets<F6> ................................. 0.95% 0.75%<F1>
Ratio of net investment income to average daily net assets ............................. 4.62% 3.40%<F1>
PORTFOLIO TURNOVER<F7>.................................................................... -- --
*For the period from the start of business, June 11, 1993, to September 30, 1993, and for the year ended September 30, 1994,
the operating expenses of the Fund and the Portoflio may reflect a reduction of expenses by the Administrator or Investment
Adviser.
NET INVESTMENT INCOME PER SHARE ......................................................... $ 0.414 $ 0.090
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F6> ......................................................................... 1.32% 1.19%<F1>
Net investment income ................................................................ 4.25% 2.96%<F1>
Footnotes:
<FN>
<F1>Computed on an annualized basis.
<F2>For the period from the start of business August 28, 1990 and August 30, 1990 to September 30, 1990 for the Florida and New
York Funds, respectively, for the period from the start of business April 18, 1991 to September 30, 1991 for the Massachusetts
and Ohio Funds, and for the period from the start of business June 11, 1993 to September 30, 1993 for the Mississippi, Rhode
Island and West Virginia Funds.
<F3>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.
<F4>Distributions from paid-in-capital for the years ended September 30, 1990, 1991 and 1992 have been restated to conform with
the treatment permitted under current financial reporting standards.
<F5>Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the payable date.
<F6>Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F7>Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- ------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are rated
at least investment grade by a major rating agency or, if unrated, determined to
be of at least investment grade quality by the Investment Adviser. Each
Portfolio has the same investment objective as its corresponding Fund.
EV MARATHON FLORIDA TAX FREE FUND (the "Florida Fund") seeks to provide
current income exempt from regular Federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Tax Free Portfolio (the
"Florida Portfolio").
EV MARATHON MASSACHUSETTS TAX FREE FUND (the "Massachusetts Fund") seeks to
provide current income exempt from regular Federal income tax and Massachusetts
state personal income taxes. The Massachusetts Fund seeks to meet its objective
by investing its assets in the Massachusetts Tax Free Portfolio (the
"Massachusetts Portfolio").
EV MARATHON MISSISSIPPI TAX FREE FUND (the "Mississippi Fund") seeks to
provide current income exempt from regular Federal income tax and Mississippi
State personal income taxes. The Mississippi Fund seeks to meet its objective by
investing its assets in the Mississippi Tax Free Portfolio (the "Mississippi
Portfolio").
EV MARATHON NEW YORK TAX FREE FUND (the "New York Fund") seeks to provide
current income exempt from regular Federal income tax and New York State and New
York City personal income taxes. The New York Fund seeks to meet its objective
by investing its assets in the New York Tax Free Portfolio (the "New York
Portfolio").
EV MARATHON OHIO TAX FREE FUND (the "Ohio Fund") seeks to provide current
income exempt from regular Federal income tax and Ohio State personal income
taxes. The Ohio Fund seeks to meet its objective by investing its assets in the
Ohio Tax Free Portfolio (the "Ohio Portfolio").
EV MARATHON RHODE ISLAND TAX FREE FUND (the "Rhode Island Fund") seeks to
provide current income exempt from regular Federal income tax and Rhode Island
State personal income taxes. The Rhode Island Fund seeks to meet its objective
by investing in the Rhode Island Tax Free Portfolio (the "Rhode Island
Portfolio").
EV MARATHON WEST VIRGINIA TAX FREE FUND (the "West Virginia Fund") seeks to
provide current income exempt from regular Federal income tax and West Virginia
State personal income taxes. The West Virginia Fund seeks to meet its objective
by investing its assets in the West Virginia Tax Free Portfolio (the "West
Virginia Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN 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 STATE TAXES SET FORTH ABOVE. The foregoing
policy is a fundamental policy of each Fund and its corresponding Portfolio,
which may not be changed unless authorized by a vote of the Fund's shareholders
or that Portfolio's investors, as the case may be.
At least 75% of the net assets of the Florida Portfolio, at least 70% of
the net assets of the Massachusetts Portfolio and New York Portfolio, and at
least 80% of the net assets of the Mississippi Portfolio, Ohio Portfolio, Rhode
Island Portfolio and West Virginia Portfolio will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. 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.
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. Securities rated below BBB or Baa are
commonly known as "junk bonds". A Portfolio may retain an obligation whose
rating drops below B after its acquisition if such retention is considered
desirable by the Investment Adviser. See "Credit Quality - Risks." 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. Public purpose municipal bonds include general obligation and revenue
bonds. General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility.
Municipal notes include bond anticipation, tax anticipation, revenue
anticipation, and construction loan notes. Bond, tax and revenue anticipation
notes are short-term obligations that will be retired with the proceeds of an
anticipated bond issue, tax revenue or facility revenue, respectively.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing. Under normal market conditions, a
Portfolio will invest at least 65% of its total assets in obligations issued by
its respective State or its political subdivisions.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from the regular Federal income tax applicable to individuals (and
corporations), but such interest (including a distribution by a 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. A Portfolio may not invest more than 20% of its net assets in these
obligations and obligations subject to regular Federal income tax and/or the
relevant State taxes. As at September 30, 1994, the Portfolios had invested in
private activity bonds as follows (as a percentage of net assets): Florida
Portfolio (8.7%); Massachusetts Portfolio (11.2%); Mississippi Portfolio (8.7%);
New York Portfolio (8.1%); Ohio Portfolio (8.0%); Rhode Island Portfolio
(10.5%); and West Virginia Portfolio (11.3%). For corporate shareholders, each
Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
Federal alternative minimum tax applicable to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
The Omnibus Budget Reconciliation Act of 1993 changed the Federal income tax
treatment of market discount on long-term tax-exempt municipal obligations
(i.e., obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 from taxable capital gain to taxable ordinary
income. A long-term debt obligation is generally treated as acquired at a market
discount if the secondary market purchase price is less than (i) the stated
principal amount payable at maturity, in the case of an obligation that does not
have original issue discount or (ii) in the case of an obligation that does have
original issue discount, the sum of the issue price and any original issue
discount that accrued before the obligation was purchased. Each Portfolio may
acquire municipal obligations at a market discount from time to time, and its
corresponding Fund's distributions will (when so required) include taxable
income reflecting the realization of such accrued discount by the Portfolio and
its allocation to the Fund.
MATURITY. It is expected that each Portfolio will normally contain substantial
amounts of long-term municipal obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since each Portfolio's objective is to provide current income, each
Portfolio will invest in obligations with an emphasis on income and not on
stability of a Portfolio's net asset value. The average maturity of a
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although each Portfolio will normally attempt to invest substantially all
of its assets in municipal obligations issued by its respective State, the
Portfolio may, under normal market conditions, invest up to 20% of its net
assets in short-term obligations the interest on which is subject to regular
Federal income tax, Federal alternative minimum tax and/or the relevant State
taxes. Such short-term taxable obligations may include, but are not limited to,
certificates of deposit, commercial paper, short-term notes and obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities. During periods of adverse market conditions, a Portfolio may
temporarily invest more than 20% of its assets in such short-term taxable
obligations, which will be rated no lower than investment grade.
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 (the "Territories"). 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: general obligations of its respective State and its political
subdivisions; lease rental obligations of State and local authorities;
obligations of State and local housing finance authorities, municipal utilities
systems or public housing authorities; obligations for hospitals or life care
facilities; or industrial development or pollution control bonds issued for
electric utility systems, steel companies, paper companies or other purposes.
This may make 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.
- -------------------------------------------------------------------------------
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 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.
- ------------------------------------------------------------------------------
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 as a "non-diversified" investment company allows it to
invest, with respect to 50% of its assets, more than 5% of its assets in the
securities of any issuer. Because of the small number of municipal obligations
issued by a State, 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. A Portfolio will also be subject to an increased risk of
loss if the issuer is unable to make interest or principal payments or if the
market value of such securities declines. It is also possible that sufficient
suitable State municipal obligations will not be available for a Portfolio to
achieve its investment objective.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is entered into by a State or local government to acquire
equipment and facilities. Interest income from such obligations is generally
exempt from local and State taxes in the State of issuance. "Participations" in
such leases are undivided interests in a portion of the total obligation.
Participations entitle their holders to receive a pro rata share of all payments
under the lease. A trustee is usually responsible for administering the terms of
the participation and enforcing the participants' rights in the underlying
lease. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by a Portfolio may be deemed
illiquid for purposes of the Portfolio's 15% limitation on investing in illiquid
securities, unless determined by the Investment Adviser, pursuant to guidelines
adopted by the Trustees of each 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 a Portfolio. In the
event a Portfolio acquires an unrated municipal lease obligation, the Investment
Adviser will be responsible for determining the credit quality of such
obligation on an ongoing basis, including an assessment of the likelihood that
the lease may or may not be cancelled.
ZERO COUPON BONDS. Each Portfolio may invest in zero coupon bonds, which are
debt obligations that do not require the periodic payment of interest and are
issued at a significant discount from their face value. Such bonds experience
greater volatility in market value due to changes in interest rates than
municipal obligations that provide for regular payments of interest. A Portfolio
will accrue income on such bonds for tax and accounting purposes in accordance
with applicable law, the corresponding Fund's proportionate share of which
income is distributable to shareholders of that Fund. Because no cash is
received at the time such income is accrued, a Portfolio may be required to
liquidate other portfolio securities to generate cash that a Fund may withdraw
from the Portfolio to satisfy the Fund's distribution obligations.
INVERSE FLOATERS. Each Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may alter this
tendency, however. Although volatile, inverse floaters typically offer the
potential for yields exceeding the yields available on fixed rate bonds with
comparable credit quality and maturity. These securities usually permit the
investor to convert the floating rate to a fixed rate (normally adjusted
downward), and this optional conversion feature may provide a partial hedge
against rising interest rates if exercised at an opportune time. Inverse
floaters are leveraged because they provide two or more dollars of bond market
exposure for every dollar invested.
CREDIT QUALITY -- RISKS. 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. 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.
Each Portfolio's holdings of obligations rated below investment grade generally
will be less than 35% of its net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary in
order to comply with the foregoing limitation. For a description of municipal
obligation ratings, see the Statement of Additional Information.
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.
MARKET CONDITIONS. The management of the Portfolios believes that, in general,
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 for large issues of municipal
obligations that trade in a national market. 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. These considerations may
restrict the availability of such obligations, may affect the choice of
securities sold to meet redemption requests and may limit a Portfolio's ability
to sell or dispose of such securities. Also, valuation of such obligations may
be more difficult.
NET ASSET VALUE FLUCTUATION. The net asset value of 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. An investment in shares of a Fund will not
constitute a complete investment program.
SHORT-TERM TRADING. Each Portfolio may sell securities in anticipation of a
market decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what a 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
portfolio turnover rate and the expenses incurred in connection with such
trading. Each 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. 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. A Portfolio will not
accrue income in respect of when-issued securities prior to the stated delivery
date of such securities. Each Portfolio will maintain in a segregated account
sufficient assets to cover its outstanding purchase obligations.
SECURITIES LENDING. Each 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 each 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. Each 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, a 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, a Portfolio may pay lending fees to such borrowers. A 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 a Fund of any income
realized by its corresponding Portfolio from securities loans will be taxable.
If the management of a Portfolio decides to make securities loans, it is
intended that the value of the securities loaned would not exceed 30% of the
Portfolio's total assets.
FUTURES AND OPTIONS TRANSACTIONS. To hedge against changes in interest rates,
each Portfolio may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on futures contracts. Each Portfolio may
also enter into closing purchase and sale transactions with respect to such
contracts and options. The futures contracts may be based on various debt
securities (such as U.S. Government securities), securities indices and other
financial instruments and indices. Each Portfolio will engage in futures and
related options transactions for bona fide hedging or non-hedging purposes as
defined in or permitted by regulations of the Commodity Futures Trading
Commission. A Portfolio will engage in such transactions for non-hedging
purposes only in order to enhance total return by using a futures position as a
lower cost substitute for a securities position that the Portfolio is otherwise
authorized to enter into.
A Portfolio may not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no other percentage
limitations on a Portfolio's transactions in futures contracts or options on
futures, except that at least 80% of the Portfolio's net assets will be invested
in municipal obligations as described above. These transactions involve
brokerage costs, require margin deposits and, in the case of futures contracts
and options requiring a Portfolio to purchase securities, require the Portfolio
to segregate liquid high grade debt securities in an amount equal to the
underlying value of such contracts and options. In addition, while transactions
in futures contracts and options on futures may reduce certain risks, such
transactions themselves involve (1) liquidity risk that contractual positions
cannot be easily closed out in the event of market changes, (2) correlation risk
that changes in the value of hedging positions may not match the market
fluctuations intended to be hedged (especially given that the only futures
contracts currently available to hedge municipal obligations are futures on
various U.S. Government securities and on municipal securities indices), (3)
market risk that an incorrect prediction by the Investment Adviser of interest
rates may cause a Portfolio to perform less well than if such positions had not
been entered into, and (4) skills different from those needed to select
portfolio securities. Distribution by a Fund from any net income or gains
realized on its corresponding Portfolio's transactions in futures and options on
futures will be taxable.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A 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. Upon
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 IS 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.
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 different
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. 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 funds investing in a Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from a Portfolio, the remaining funds 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. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
<S> <C> <C> <C>
1 up to $20 million ............................................ 0.100% 1.00%
2 $20 million but less than $40 million ........................ 0.200% 2.00%
3 $40 million but less than $500 million ....................... 0.300% 3.00%
4 $500 million but less than $1 billion ........................ 0.275% 2.75%
5 $1 billion but less than $1.5 billion ........................ 0.250% 2.50%
6 $1.5 billion but less than $2 billion ........................ 0.225% 2.25%
7 $2 billion but less than $3 billion .......................... 0.200% 2.00%
8 $3 billion and over .......................................... 0.175% 1.75%
</TABLE>
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory
fees for the fiscal year ended September 30, 1994 equivalent to the following
annualized percentage of average daily net assets:
<TABLE>
<CAPTION>
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1994 ADVISORY FEE
--------- ------------------ ------------
<S> <C> <C>
Florida ................................................. $772,123,153 0.46%
Massachusetts ........................................... 308,539,780 0.46%
Mississippi ............................................. 29,476,651 0.19%<F1>
New York ................................................ 655,646,776 0.46%
Ohio .................................................... 324,411,553 0.45%
Rhode Island ............................................ 38,119,918 0.21%<F2>
West Virginia ........................................... 40,473,310 0.23%<F3>
<FN>
<F1>To enhance the net income of the Mississippi Portfolio, BMR made a reduction of its advisory fee
in the full amount of such fee and BMR was allocated $19,780 of expenses related to the operation
of such Portfolio.
<F2>To enhance the net income of the Rhode Island Portfolio, BMR made a reduction of its advisory fee
in the full amount of such fee.
<F3>To enhance the net income of the West Virginia Portfolio, BMR made a reduction of its advisory fee
in the full amount of such fee.
</TABLE>
BMR also furnishes for the use of each Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolios. Each Portfolio is responsible for the payment of
all expenses other than those expressly stated to be payable by BMR under its
investment advisory agreement.
Nicole Anderes has acted as the portfolio manager of the New York and Rhode
Island Portfolios since they commenced operations. She joined Eaton Vance and
BMR as a Vice President in January 1994. Prior to joining Eaton Vance, she was a
Vice President and portfolio manager at Lazard Freres Asset Management
(1992-1994) and a Vice President and Manager -- Municipal Research at Roosevelt
& Cross (1978-1992).
Timothy T. Browse has acted as the portfolio manager of the West Virginia
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior to
joining Eaton Vance, he was a municipal bond trader at Fidelity Management &
Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Mississippi
Portfolio since it commenced operations. She has been a Vice President of Eaton
Vance and BMR since 1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He has been a Vice President of
Eaton Vance since 1987 and of BMR since inception.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance since joining the firm in 1991 and of BMR since its inception. Prior to
joining Eaton Vance, he was a portfolio manager at Fidelity Management &
Research Company (1986-1991).
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the 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.
DISTRIBUTION PLANS
- -------------------------------------------------------------------------------
EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940. Rule
12b-1 permits a mutual fund, such as a Fund, to finance distribution activities
and bear expenses associated with the distribution of its shares provided that
any payments made by the fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). Each Fund's Plan is described in the Statement of Additional
Information, and the following is a brief description of the salient features of
the Plans. Each Fund's Plan provides that the Fund, subject to the NASD Rule,
will pay sales commissions and distribution fees to the Principal Underwriter
only after and as a result of the sale of shares of the Fund. On each sale of
Fund shares (excluding reinvestment of distributions) a Fund will pay the
Principal Underwriter amounts representing (i) sales commissions equal to 5% of
the amount received by a Fund for each share sold and (ii) distribution fees
calculated by applying the rate of 1% over the prime rate then reported in The
Wall Street Journal to the outstanding balance of Uncovered Distribution Charges
(as described below) of the Principal Underwriter. The Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to a financial service firm (an "Authorized Firm") at the time of
sale equal to 4% of the purchase price of the shares sold by such Firm. The
Principal Underwriter will use its own funds (which may be borrowed from banks)
to pay such commissions. Because the payment of the sales commissions and
distribution fees to the Principal Underwriter is subject to the NASD Rule
described below, it will take the Principal Underwriter a number of years to
recoup the sales commissions paid by it to Authorized Firms from the payments
received by it from a Fund pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER 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.
The amount payable by a Fund to the Principal Underwriter pursuant to the
Plan with respect to each day will be accrued on such day as a liability of a
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 by a Fund is limited to 1/365 of .75% of the Fund's net assets on such
day. The level of a 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 corresponding Portfolio, the expenses of the Fund and of
the corresponding Portfolio accrued and allocated to the Fund on such day,
income on portfolio investments of the corresponding Portfolio accrued and
allocated to the Fund on such day, and any dividends and distributions declared
on Fund shares. A 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 its Plan in the future because the
standards for accrual of a liability under such accounting principles have not
been satisfied.
Each Fund's 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 a Fund to the Principal Underwriter whenever
there exist Uncovered Distribution Charges under the Fund's Plan.
The provisions of the Plans relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreements between the Trust on behalf of the Funds and the
Principal Underwriter. Each Plan provides that it shall continue in effect
through and including April 28, 1995, and shall continue in effect indefinitely
thereafter for so long as such continuance is approved at least annually by the
vote of both a majority of (i) the Trustees of the Trust who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to the Plan (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office, and each Distribution
Agreement contains a similar provision. A Plan and Distribution Agreement may be
terminated at any time by vote of a majority of the Rule 12b-1 Trustees, or by a
vote of a majority of the outstanding voting securities of the Fund.
Periods with a high level of sales of Fund shares accompanied by a low
level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Fund shares accompanied by a
high level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of 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.
For the fiscal year ended September 30, 1994, each Fund paid sales
commissions under its Plan equivalent to .75% (annualized) of such Fund's
average daily net assets. As of September 30, 1994, the outstanding Uncovered
Distribution Charges of the Principal Underwriter on such day calculated under
each Fund's Plan amounted to approximately $28,281,000 (equivalent to 3.7% of
net assets) in the case of the Florida Fund, $11,476,000 (equivalent to 3.9% of
net assets) in the case of the Massachusetts Fund, $1,347,000 (equivalent to
5.0% of net assets) in the case of the Mississippi Fund, $23,230,000 (equivalent
to 3.6% of net assets) in the case of the New York Fund, $12,866,000 (equivalent
to 4.0% of net assets) in the case of the Ohio Fund, $1,686,000 (equivalent to
4.9% of net assets) in the case of the Rhode Island Fund, and $1,848,000
(equivalent to 4.8% of net assets) in the case of the West Virginia Fund.
THE PLANS ALSO AUTHORIZE THE FUNDS 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 September 30,
1994, the following Funds made service fee payments (as an annualized percentage
of average daily net assets): Florida Fund (0.11%); Massachusetts Fund (0.11%);
New York Fund (0.12%); and Ohio Fund (0.11%). The Mississippi, Rhode Island and
West Virginia Funds commenced accruing their service fee payments with the
quarter ended June 30, 1994.
Each Fund's Plan as currently implemented by the Trustees 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. The Funds believe that the
combined rate of all these payments may be higher than the rate of payments made
under distribution plans adopted by other investment companies pursuant to Rule
12b-1. It is anticipated that the Eaton Vance organization will profit by reason
of the operation of the Plans through increases in the Funds' assets (thereby
increasing the advisory fees payable to BMR by the Portfolios) resulting from
sale of Fund shares and through amounts paid under the Plans to the Principal
Underwriter and contingent deferred sales charges paid to the Principal
Underwriter.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of 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 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
substantially all of 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. Municipal obligations will normally be valued on the
basis of valuations furnished by a pricing service. For further information
regarding the valuation of the Portfolios' assets, see "Determination of Net
Asset Value" in the Statement of Additional Information. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Funds' and the Portfolios' custodian.
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SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE.
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HOW TO BUY FUND SHARES
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SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold.
An initial investment in a Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Funds' Transfer Agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Draft 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 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] Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [State name] Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult his
or her tax adviser with respect to the particular Federal, State and local tax
consequences of exchanging securities for Fund shares.
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IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
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HOW TO REDEEM FUND SHARES
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A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to The Shareholder Services Group, Inc. In addition, in some cases,
good order may require the furnishing of additional documents such as where
shares are registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by
The Shareholder Services Group, Inc., a Fund will make payment in cash for the
net asset value of the shares as of the date determined above, reduced by the
amount of any applicable contingent deferred sales charges described below and
Federal income tax required to be withheld. Although each Fund normally expects
to make payment in cash for redeemed shares, the Trust, subject to compliance
with applicable regulations, has reserved the right to pay the redemption price
of shares of a Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by that Fund from its corresponding
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the low
account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six
years of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge.
This contingent deferred sales charge is imposed on any redemption the amount of
which exceeds the aggregate value at the time of redemption of (a) all shares in
the account purchased more than six years prior to the redemption, (b) all
shares in the account acquired through reinvestment of monthly distributions and
capital gains distributions, and (c) the increase, if any, in the value of all
other shares in the account (namely those purchased within the six years
preceding the redemption) over the purchase price of such shares. Redemptions
are processed in a manner to maximize the amount of redemption proceeds which
will not be subject to a contingent deferred sales charge; i.e., each redemption
will be assumed to have been made first from the exempt amounts referred to in
clauses (a), (b) and (c) above, and second through liquidation of those shares
in the account referred to in clause (c) on a first-in-first-out basis. Any
contingent deferred sales charge which is required to be imposed on share
redemptions will be made in accordance with the following schedule:
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
------------------ -------------------
First ..................................... 5%
Second .................................... 5%
Third ..................................... 4%
Fourth .................................... 3%
Fifth ..................................... 2%
Sixth ..................................... 1%
Seventh and following ..................... 0%
For shares purchased prior to August 1, 1994, the contingent deferred sales
charge for redemptions within the first year after purchase is 6%. In
calculating the contingent deferred sales charge upon the redemption of shares
acquired in an exchange of shares of a fund currently listed under "The Eaton
Vance Exchange Privilege," the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
Fund shares acquired in the exchange is deemed to have occurred at the time of
the original purchase of exchanged shares. The contingent deferred sales charge
will be waived for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton
Vance Shareholder Services"), (2) as part of a required distribution from a
tax-sheltered retirement plan or (3) following the death of all beneficial
owners of such shares, provided the redemption is requested within one year of
death (a death certificate and other applicable documents may be required).
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance, its affiliates, their respective employees or
clients. The contingent deferred sales charge will be paid to the Principal
Underwriter or the Fund. When paid to the Principal Underwriter it will reduce
the amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. See "Distribution Plans."
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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.
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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 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.
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UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
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THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of a Fund may currently be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (currently Eaton Vance
Equity-Income Trust, Eaton Vance Liquid Assets Trust (until March 31, 1995), and
any EV Marathon fund, except EV Marathon Short-Term Strategic Income Fund, Eaton
Vance Prime Rate Reserves and any EV Marathon Limited Maturity Fund) which are
distributed with a contingent deferred sales charge, on the basis of 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. Effective March 31, 1995, the EV Marathon Group of
Funds will also include EV Marathon Short-Term Strategic Income Fund, any EV
Marathon Limited Maturity Fund and, when publicly available, Eaton Vance Money
Market Fund (availability expected on or about April 3, 1995).
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days notice prior to any termination or
material amendment of the exchange privilege. The 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 EV Marathon Group of Funds (except EV
Marathon Short-Term Strategic Income Fund and Class I shares of any EV Marathon
Limited Maturity Fund), see "How to Redeem Fund Shares". The contingent deferred
sales charge schedule applicable to EV Marathon Short-Term Strategic Income Fund
or Class I shares of any EV Marathon Limited Maturity Fund is 3%, 2.5%, 2% or 1%
in the event of a redemption occurring in the first, second, third or fourth
year, respectively, after the original share purchase.
Shares of other funds in the Eaton Vance Marathon Group of Funds may be
exchanged for Fund shares at their respective net asset values per share, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.
provided the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call The Shareholder Services Group, Inc. at 800-
262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday, 9:00
a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange
must be registered in the same name(s) and with the same address as the shares
being exchanged. Neither the 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 DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for these accounts.
WITHDRAWAL PLAN: 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 30 days after such repurchase or
redemption. Shares are sold to a reinvesting shareholder at the next determined
net asset value following timely receipt of a written purchase order by the
Principal Underwriter or by a Fund (or by the Fund's Transfer Agent). To the
extent that any shares of a Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption) some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
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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 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.
In order to qualify as a regulated investment company under the Internal
Revenue Code (the "Code"), each Fund must satisfy certain requirements relating
to the sources of its income, the distribution of its income, and the
diversification of its assets. In satisfying these requirements, 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.
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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.
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Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 12). 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. The current yield for each Fund will be calculated by dividing the net
investment income per share during a recent 30-day period by the maximum
offering price per share (net asset value) of the Fund on the last day of the
period and annualizing the resulting figure. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by one minus the tax
rate. Each Fund's average annual total return is determined by computing the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (net asset value) for specified periods ending with the
most recent calendar quarter, assuming reinvestment of all distributions. The
average annual total return calculation assumes a complete redemption of the
investment and the deduction of any contingent deferred sales charge at the end
of the period. The Funds may publish annual and cumulative total return figures
from time to time.
The Funds may also publish the distribution rate and/or the effective
distribution rate. Each Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current net asset
value 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.
Performance figures published by a Fund which do not include the effect of
any applicable contingent deferred sales charge would be reduced if it were
included.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's current yield or total return for
any prior period should not be considered a representation of what an investment
may earn or what an investor's yield or total return may be in any future
period. If the expenses of a Fund or its corresponding Portfolio are paid by
Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico. The bond ratings provided below are
current as of the date of this Prospectus and are based on economic conditions
which may not continue; moreover, there can be no assurance that particular bond
issues may not be adversely affected by changes in economic, political or other
conditions. Unless stated otherwise the ratings indicated are for obligations of
the State. A State's political subdivisions may have different ratings which are
unrelated to the ratings assigned to State obligations.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner. The General Fund budget for 1994-95 includes
revenues of $14.6 billion (a 7.3% increase over 1993-94) and expenditures of
$14.3 billion (a 7.6% increase over 1993-94). Through November, 1994, actual
revenues were 1.6% ahead of projections. Unencumbered reserves are projected to
be $281 million, or 1.9% of expenditures for fiscal year 1995. Unemployment in
the State for November, 1994 was 6.8% compared to the national unemployment rate
of 5.6%.
In 1993, the State constitution was amended to limit the annual growth in
the assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the amendment
could have a negative impact on the financial performance of local governments
over time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Florida Fund shares in their
taxable intangible property if all of the Florida Fund's investments on the
annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. Government
obligations. The Florida Portfolio will normally attempt to invest substantially
all of its assets in tax-exempt obligations of Florida, the United States, the
Territories or political subdivisions of the United States or Florida ("Florida
Obligations"), and it will ensure that all of its assets held on the annual
assessment date are exempt from the Florida intanglibles tax. Accordingly the
value of the Florida Fund shares held by a shareholder should under normal
circumstances be exempt from the Florida intangibles tax.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-intensive
manufacturing industries to technology and service-based industries. The
unemployment rate was 6.4% as of October, 1994, while the national unemployment
rate was 5.8%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain debt
incurred to pay the fiscal 1990 deficit and certain Medicaid reimbursement
payments for prior years) was limited to 10%. In addition, the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, is limited. Property taxes are virtually
the only source of tax revenues available to cities and towns to meet local
costs. This limitation on cities and towns to generate revenues could create a
demand for increases in state-funded local aid. The recent difficulties
experienced by the Commonwealth have resulted in a substantial reduction in
local aid from the Commonwealth, which may create financial difficulties for
certain municipalities.
General obligations of Massachusetts are rated A, A+ and A+ by Moody's, S&P
and Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter ruling
(the "Ruling") from the Department of Revenue of The Commonwealth of
Massachusetts to the effect that it will be classified as a partnership for
Massachusetts tax purposes. The Ruling provides that, consequently, interest
income received by the Massachusetts Portfolio on (1) debt obligations issued by
The Commonwealth of Massachusetts or its political subdivisions, including
agencies or instrumentalities thereof ("Massachusetts Obligations"), (2) the
Governments of Puerto Rico, Guam, or the United States Virgin Islands
("Possessions Obligations"), or (3) the United States ("United States
Obligations") will be treated as if realized directly by investors in the
Massachusetts Portfolio. The Ruling concludes that, provided that an investor in
the Massachusetts Portfolio qualifies as a regulated investment company ("RIC")
under the Code and satisfies certain notice requirements of Massachusetts law,
(1) dividends paid by such a RIC that are treated as tax-exempt interest under
the Code and that are directly attributable to interest on Massachusetts
Obligations (including the RIC's allocable share of interest earned by the
Massachusetts Portfolio on such obligations) and (2) dividends paid by such a
RIC that are directly attributable to interest on Possessions Obligations or
United States Obligations (including the RIC's allocable share of interest
earned by the Massachusetts Portfolio on such obligations) will, in each case,
be excluded from Massachusetts gross income. Because the Massachusetts Fund
intends to continue to invest in the Massachusetts Portfolio, qualify for
treatment as a RIC under the Code, and satisfy the applicable notice
requirements, the Massachusetts Fund's distributions to its shareholders of its
allocable share of the interest received by the Massachusetts Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. Distributions properly designated as capital gain dividends under the
Code and attributable to gains realized by the Massachusetts Portfolio and
allocated to the Massachusetts Fund on the sale of certain Massachusetts
tax-exempt obligations issued pursuant to statues that specifically exempt such
gains from Massachusetts taxation will also be exempt from Massachusetts
personal income tax. Other distributions from the Massachusetts Fund included in
a shareholder's Federal gross income, including distributions derived from net
long-term capital gains not described in the preceding sentence and net
short-term capital gains, are generally not exempt from Massachusetts personal
income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for taxable
years beginning after 1995.
Distributions from the Massachusetts Fund will be included in net income,
and in the case of intangible property corporations, shares of the Massachusetts
Fund, will be included in net worth for purposes of determining the
Massachusetts excise tax on corporations subject to Massachusetts taxation.
MISSISSIPPI. The State's economic outlook has improved recently, in part due to
the strong growth exhibited by the manufacturing sector. The food and related
paper and allied product sectors have also experienced strong and steady growth.
Also, the governmental and wholesale/retail trade and service sectors have had
sound gains in employment. In recent years, the State has successfully expanded
its economy through technology-based research and education, and the Mississippi
banking system has exhibited relative strength and stability over the past
several years, a period characterized by a growing number of bank failures
nationwide. The construction and casino industries have also experienced growth
recently.
All State indebtedness must be authorized by legislation governing the
specific programs or projects to be financed. Such debt may include short- and
long-term indebtedness, self-supporting general obligation bonds, highway bonds
and other types of indebtedness. As of December 31, 1994, the State's total bond
indebtedness was $926.9 million. For the fiscal year ended June 30, 1993, the
constitutional debt limit was approximately $4.6 billion. State revenues were
$7.2 billion as of June 30, 1994.
General obligations of Mississippi are rated AA-, and Aa by S&P and
Moody's. S&P has a positive outlook for the State.
MISSISSIPPI TAXES. Under existing Mississippi law, interest received by a
Mississippi resident individual upon the obligations of the State of Mississippi
or political subdivisions thereof ("Mississippi obligations") are exempt from
Mississippi income tax. A recently adopted Mississippi Income Tax Regulation
provides a pass-through of the tax-exempt character of interest received by a
regulated investment company, such as the Mississippi Fund, upon distribution to
its shareholders where the Mississippi Fund directly owns such Mississippi
tax-exempt obligations. Under the new regulation, a taxpayer's pro rata portion
of interest dividends distributed by a regulated investment company is exempt
from Mississippi income tax to the extent that such pro rata portion represents
interest received by a regulated investment company from governmental securities
which would be exempt for Mississippi income tax purposes if such governmental
securities were directly held by the taxpayer. In this situation, however, the
Mississippi Fund will not own the Mississippi tax-exempt obligations directly
but will invest in the Mississippi Portfolio, which will own the Mississippi
tax-exempt obligations. There is no law addressing the Mississippi income tax
consequences to Mississippi resident individuals receiving interest dividends
from a regulated investment company, such as the Mississippi Fund, that
contributes its assets to a trust, such as the Mississippi Portfolio, in
exchange for an interest therein where the trust owns Mississippi tax-exempt
obligations and distributes the income therefrom to the regulated investment
company. In 1993, the Mississippi State Tax Commission issued a ruling stating
that a Mississippi resident taxpayer's pro rata portion of interest dividends
distributed by the Mississippi Fund will be non-taxable to the extent that such
pro rata portion represents interest received by the Mississippi Fund, either
directly or through the Mississippi Portfolio, from Mississippi tax-exempt
obligations, which would be exempt for Mississippi income tax purposes if such
tax-exempt obligations were directly held by the taxpayer. In the opinion of
Butler, Snow, O'Mara, Stevens & Cannada, PLLC, special Mississippi tax counsel
to the Mississippi Fund, a Mississippi resident individual's pro rata portion of
interest dividends distributed by the Mississippi Fund will be exempt from
Mississippi income tax to the extent that such pro rata portion (i) is excluded
from gross income under the Code and (ii) represents interest the Mississippi
Fund receives, either directly or through the Mississippi Portfolio, from
investments in Mississippi tax-exempt obligations.
NEW YORK. New York is the second most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. The State's general credit standing has
historically reflected its diverse and substantial economic base. However, as
the result of a recession ending in the first quarter of 1993, 560,000 jobs were
lost statewide (equal to 6.7% of the peak employment figure for 1989). Since the
first quarter of 1993, 100,130 jobs have been added, with nearly half of such
jobs occurring in the first quarter of 1994. In fiscal year 1993, however, the
State began the process of financial reform. The 1993 and 1994 financial plans
exceeded expectations and produced operating surpluses in both years.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in
recent years and currently continues to experience such difficulties owing, in
part, to lower than anticipated revenues. Because New York City taxes comprise
40% of the State's tax base, the City's difficulties adversely affect the State.
Both the State and the City will be constrained in addressing future fiscal
problems by their high current level of taxes.
In June, 1994, the Governor approved the 1994-1995 budget, which reduces
taxes by $476 million in the 1994-1995 fiscal year and by more than $1.6 billion
when fully implemented. A reduction in both State and City personal income taxes
scheduled to take effect in 1994 has been deferred for one year as a part of the
1994-1995 budget.
Constitutional challenges to State laws have limited the amount of taxes
which political subdivisions can impose on real property, which may have an
adverse effect on the ability of issuers to pay obligations supported by such
taxes. A variety of additional court actions have been brought against the State
and certain agencies and municipalities relating to financings, amount of real
estate tax, use of tax revenues and other matters which could adversely affect
the ability of the State or such agencies or municipalities to pay their
obligations.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. New York City obligations are rated Baa1, A- and A- by
Moody's, S&P and Fitch, respectively. On January 17, 1995, S&P placed the City's
general obligation bonds on CreditWatch with negative implications as the result
of plans by the City to refund some of its debt to provide budget savings in its
1995 fiscal year. S&P stated that, by April 1995, if the City continues to use
budget devices such as debt refundings or fails to get ongoing budget relief
from the State, S&P would lower the rating on New York City general obligation
debt to the "BBB" category. Any such downward revision could have an adverse
effect on the obligations held by the New York Portfolio.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income tax,
dividends paid by the New York Fund are exempt from New York State and New York
City income tax for individuals who reside in New York to the extent such
dividends are excluded from gross income for Federal income tax purposes and are
derived from interest payments on tax-exempt obligations issued by or on behalf
of New York State and its political subdivisions and agencies, and the
governments or Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the New York Fund, including distributions derived from
taxable ordinary income and net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
OHIO. The State's economy is reliant in part on durable goods manufacturing,
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, economic activity in Ohio tends to be more
cyclical than in some other states and in the nation as a whole. Unemployment
declined from 6.5% to 4.2% between November, 1993 and November, 1994. The
national unemployment rate in November, 1994 was 5.6%. In fiscal 1993, a
projected $520 million budget gap was addressed through tax increases and
appropriation cuts. The fiscal year 1994 budget was balanced, and the State's
General Revenue Fund had an ending fund balance of $560 million.
General obligations of Ohio are rated Aa and AA by S&P and Moody's,
respectively (except that highway obligations are rated Aaa by S&P). Fitch does
not currently rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law, individuals who are otherwise subject to the
Ohio personal income tax will not be subject to such tax on dividends paid by
the Ohio Fund to the extent such dividends are properly attributable to interest
on obligations issued by or on behalf of the State of Ohio or its political
subdivisions or the agencies or instrumentalities thereof ("Ohio Obligations").
Dividends paid by the Ohio Fund also will be excluded from the net income base
of the Ohio corporation franchise tax to the extent such dividends are excluded
from gross income for Federal income tax purposes or properly attributable to
interest on Ohio obligations. However, the Ohio Fund's shares will be included
in the tax base computing the Ohio corporation franchise tax on the net worth
basis. These conclusions regarding Ohio taxation are based on the assumption
that the Ohio Fund will continue to qualify as a regulated investment company
under the Code and that at all times at least 50% of the value of the total
assets of the Ohio Fund will consist of obligations of the State of Ohio and its
political subdivisions or similar obligations of other states or their
subdivisions determined, to the extent the Ohio Fund invests in the Ohio
Portfolio, by treating the Ohio Fund as owning its proportionate share of the
assets owned by the Ohio Portfolio.
RHODE ISLAND. In an attempt to compensate for budget problems in 1990 and 1991,
the State's budget for fiscal 1993 incorporated a combination of service budget
reductions, aggressive pursuit of federal program receipts and revenue
enhancements. In 1993, the State recorded on $8.4 million operating surplus,
boosting the undesignated general fund balance to $8.7 million. Combined with
budget stabilization reserves, the State ended fiscal 1993 with $32 million in
available monies (equal to 1.4% of expenditures). The fiscal year 1994 budget
excluded nearly all gasoline tax revenues and transportation expenditures, which
will now be recorded in a new dedicated surface transportation fund. Fiscal 1994
revenues estimates were $14 million above the enacted budget. Unaudited
expenditures in excess of revised revenues are, however, expected to yield a
$2.9 million drawdown of balances to $5.8 million. The 1995 budget includes
budgeted reserves of $46.5 million (equal to 3% of fiscal 1995 expenditures).
In January, 1991, the collapse of the Rhode Island Share and Deposit
Indemnity Corporation precipitated the closure of 45 financial institutions with
a total deposit liability of approximately $1.7 billion. In response, the State
created the Rhode Island Depositors Economic Protection Corporation, a public
corporation, ("DEPCO"), to assist in the resolution of the resulting banking
crisis. By the end of 1992, substantially all of the frozen deposits had been
repaid or otherwise made available to depositors through the reopening, sale or
liquidation of the closed institutions. DEPCO currently has outstanding
approximately $475.8 million of special obligation bonds, the proceeds of which
were used to facilitate the sale of certain institutions and the payout of
frozen deposits. Receipts from .6% of the State's sales and use tax rate are
dedicated to a special revenue fund to be used for repayment of the special
obligation bonds. In addition, DEPCO has outstanding approximately $130 million
of general obligation bonds, which it expects will be repaid primarily out of
the proceeds from liquidating assets acquired from certain of the failed
institutions. Over the next 20 years, DEPCO is also obligated to pay former
depositors approximately $54 million.
Under the budget enacted for fiscal year 1993, State aid programs to Rhode
Island cities and towns is slated to be $379.9 million, representing a net
increase over fiscal year 1992 of $34.5 million. In fiscal year 1994, Rhode
Island cities and towns are expected to start receiving 1% of State tax revenue
(approximately $12.6 million) as a distribution through the general revenue
sharing program.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A-1 by Moody's and AA- with a stable outlook from S&P. The
State reportedly ranks fourth among all states in per capita tax-supported debt
load. General obligations of Rhode Island are rated AA-, A-1 and AA-, by S&P,
Moody's and Fitch, respectively.
RHODE ISLAND TAXES. The Rhode Island Fund obtained an opinion from Hinckley,
Allen & Snyder, special tax counsel to the Rhode Island Fund, that under Rhode
Island law, dividends paid by the Rhode Island Fund are exempt from Rhode Island
state income tax for individuals who reside in Rhode Island to the extent such
dividends are excluded from gross income for Federal income tax purposes and are
derived from interest payments on obligations of Rhode Island, its political
subdivisions, the Territories or the United States ("Rhode Island Obligations").
Other distibutions from the Rhode Island Fund, including distributions from
capital gains, are generally not exempt from Rhode Island state personal income
tax.
WEST VIRGINIA. The West Virginia economy is heavily dependent on the
resource-based industries, specifically coal, chemical and steel. Although the
State's economy has begun to rebound from the economic recession, the State
unemployment rate remains significantly above the national average. For October,
1994, the State unemployment rate was 7.9% down from the October, 1993 level of
10.4%, but well above the national average of 5.8%. The service and wood sectors
and tourism are expected to lead the improving State economy. The manufacturing
sector has contracted in past years, and mining employment is 16% below the
level which existed in 1990. Per capita income for the state is approximately
78% of the national average.
Despite attempts to make State government more efficient, the State
continues to experience revenue shortfalls. In addition, the State was faced
with significant unfunded liabilities in its Workers Compensation Fund, Teachers
Retirement Fund and certain other retirement systems in 1992. A Public
Retirement Task Force was established to examine the State's retirement systems
and to make recommendations to place the systems on a sound financial basis. The
current status of this situation was unavailable. On a budgetary basis, for
1992, the General Fund was drawn down by $41 million to $27 million. In 1993,
the State realized a $44 million operating surplus. The Governor had imposed a
5% spending cut on most state agencies during 1993.
The West Virginia Supreme Court of Appeals recently declared a School
Building Authority to be unconstitutional. Although prior issuances were
unaffected by the ruling, the State cannot issue lease obligations going
forward. There can be no assurance as to the level of future debt borrowing and
the possible implications on the financial position of the State.
General obligations of West Virginia are currently rated A+, A1 and A+, by
S&P, Moody's and Fitch, respectively.
WEST VIRGINIA TAXES. In the opinion of Bowles, Rice, McDavid, Graff & Love,
special West Virginia tax counsel to the West Virginia Fund, under existing West
Virginia law, in 1991 the West Virginia Department of Tax and Revenue issued
Technical Assistance Advisory 91-002 which was declared to be of precedential
value. This Technical Assistance Advisory addresses liability for West Virginia
personal income tax on interest and dividend income received by investors in
regulated investment companies. Accordingly, under existing law, as long as the
West Virginia Fund qualifies as a separate "regulated investment company" under
the Code, that portion of exempt-interest dividends that represents interest
income received by the West Virginia Fund from obligations of the United States
and its possessions and interest or dividend income received by the West
Virginia Fund on obligations or securities of any authority commission or
instrumentality of the United States or of the State of West Virginia, which is
exempt from West Virginia State income tax by Federal or West Virginia law, is
exempt from West Virginia Personal Income Tax. This exemption does not apply to
any portion of interest income on obligations of any state other than West
Virginia, regardless of any exemption provided under Federal law. In the event
the West Virginia Fund fails to qualify as a separate "regulated investment
company", the foregoing exemption may be unavailable or substantially limited.
The Technical Assistance Advisory contains a more specific, although
nonexclusive, list of obligations and authorities which are exempt from
taxation. The Technical Assistance Advisory also confirms that interest on
indebtedness incurred (directly or indirectly) by a shareholder of the West
Virginia Fund to purchase or carry shares of the West Virginia Fund will not be
deductible for West Virginia income purposes.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for August, 1994 was approximately 14.5%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
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 MARATHON FLORIDA TAX FREE FUND
EV MARATHON MASSACHUSETTS TAX FREE FUND
EV MARATHON MISSISSIPPI TAX FREE FUND
EV MARATHON NEW YORK TAX FREE FUND
EV MARATHON OHIO TAX FREE FUND
EV MARATHON RHODE ISLAND TAX FREE FUND
EV MARATHON WEST VIRGINIA TAX FREE FUND
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1995
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV MARATHON NATIONAL MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUSES DATED FEBRUARY 1, 1995
The Trustees of each Fund and the corresponding Portfolio have amended
the nonfundamental investment policy governing call options to read "neither the
Fund nor the Portfolio may engage in options, futures or forward transactions if
more than 5% of its net assets, as measured by the aggregate of the premiums
paid by the Fund or the Portfolio, would be so invested". THE FOLLOWING
DISCLOSURE IS ADDED TO THE SECTION "WHEN-ISSUED SECURITIES":
The Portfolio may also purchase instruments that give the
Portfolio the option to purchase a municipal obligation when and if
issued.
May 5, 1995 M-CPS
<PAGE>
<PAGE>
EV MARATHON NATIONAL MUNICIPALS FUND
IN SEEKING CURRENT INCOME, EV MARATHON NATIONAL MUNICIPALS FUND (THE "FUND")
IS A MUTUAL FUND SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM THE REGULAR
FEDERAL INCOME TAX. THE FUND INVESTS ITS ASSETS IN NATIONAL MUNICIPALS PORTFOLIO
(THE "PORTFOLIO"), A DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. THE FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other government agency.
Shares of the Fund involve investment risks, including fluctuations in value and
the possible loss of some or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated February 1, 1995 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's Principal Underwriter,
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110 (telephone
(800) 225-6265). The Portfolio's investment adviser is Boston Management and
Research (the "Investment Adviser"), a wholly-owned subsidiary of Eaton Vance
Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Page Page
Shareholder and Fund Expenses ..................... 2 How to Redeem Fund Shares ..................... 19
The Fund's Financial Highlights ................... 4 Reports to Shareholders ....................... 21
The Fund's Investment Objective ................... 5 The Lifetime Investing Account/Distribution
How the Fund and the Portfolio Invest Options ..................................... 21
their Assets .................................... 5 The Eaton Vance Exchange Privilege ............ 22
Organization of the Fund and the Portfolio ........ 11 Eaton Vance Shareholder Services .............. 23
Management of the Fund and the Portfolio .......... 13 Distributions and Taxes ....................... 24
Distribution Plan ................................. 14 Performance Information ....................... 25
Valuing Fund Shares ............................... 17 Appendix ...................................... 27
How to Buy Fund Shares ............................ 18
- ------------------------------------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1995
</TABLE>
<PAGE>
SHAREHOLDER AND FUND EXPENSES (1)
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges
Imposed on Redemption During the First Seven Years
(as a percentage of redemption proceeds exclusive of all
reinvestments and capital apprecition in the account)(2) 5.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee(3) 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.91
Other Expenses 0.16
-----
Total Operating Expenses 1.51%
=====
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
An investor would pay the following
contingent deferres sales charge
and expenses on a $1,000 investment,
assuming (a) 5% annual return and
(b) redemption at the end of each
period: $65 $88 $102 $180
An investor would pay the following
expenses on the same investment,
assuming (a) 5% annual return and
(b) no redemptions: $15 $48 $ 82 $180
Notes:
(1) The purpose of the above table and Example is to summarize the aggregate
expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund will
bear directly or indirectly. The Trustees of the Trust believe that over
time the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to the per share expenses which the Fund would incur
if the Trust retained the services of an investment adviser and the assets
of the Fund were invested directly in the type of securities being held by
the Portfolio. The percentages indicated as Annual Fund and Allocated
Portfolio Operating Expenses and the amounts included in the Example are
based on the Fund's and Portfolio's fees and expenses for the fiscal year
ended September 30, 1994. The table and Example should not be considered a
representation of past or future expenses and actual expenses may be greater
or less than those shown. For further information regarding the expenses of
the Fund and the Portfolio see "The Fund's Financial Highlights,"
"Organization of the Fund and the Portfolio," "Management of the Fund and
the Portfolio" and "How to Redeem Fund Shares". Because the Fund makes
payments under its Distribution Plan adopted under Rule 12b-1, a long-term
shareholder may pay more than the economic equivalent of the maximum
front-end sales charge permitted by a rule of the National Association of
Securities Dealers, Inc. See "Distribution Plan." Other investment companies
with different distribution arrangements are investing in the Portfolio and
additional such companies may do so in the future. See "Organization of the
Fund and the Portfolio".
(2) No contingent deferred sales charge is imposed on (a) shares purchased more
than six years prior to the redemption, (b) shares acquired through the
reinvestment of dividends and distributions and (c) any appreciation in
value of other shares in the account (see "How to Redeem Fund Shares"), and
no such charge is imposed on exchanges of Fund shares for shares of one or
more other funds in the Eaton Vance Marathon Group of Funds (see "The Eaton
Vance Exchange Privilege").
(3) The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the
fee schedule on page 13.
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which has
been so included in reliance upon the report of Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and auditing.
Further information regarding the performance of the Fund is contained in the
Fund's annual report to shareholders which may be obtained without charge by
contacting the Principal Underwriter, Eaton Vance Distributors, Inc.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------------------
1994 1993(1) 1992 1991 1990 1989 1988 1987 1986*(a)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year .. $10.570 $ 9.820 $ 9.430 $ 9.120 $ 9.570 $ 9.570 $ 9.260 $10.180 $10.000
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM OPERATIONS:
Net investment
income ........... $ 0.556 $ 0.553 $ 0.568 $ 0.586 $ 0.613 $ 0.642 $ 0.659 $ 0.684 $ 0.669
Net realized and
unrealized (loss)
gain on
investments ...... (1.043) 0.856 0.490 0.413 (0.348) 0.095 0.404 (0.819) 0.257
------ ------ ------ ------ ------ ------ ------ ------ ------
Total income
(loss) from
operations ..... $ (0.487) $ 1.409 $ 1.058 $ 0.999 $ 0.265 $ 0.737 $ 1.063 $ (0.135) $ 0.849
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment
income ........... $ (0.556) $ (0.553) $ (0.568) $ (0.586) $ (0.613) $ (0.643) $ (0.658) $ (0.684) $ (0.669)
In excess of net
investment income
(1) .............. (0.077) (0.106) (0.100) (0.103) (0.102) (0.094) (0.095) (0.101) --
In excess of net
realized gain on
investment
transactions ..... (0.040) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions .. $ (0.673) $ (0.659) $ (0.668) $ (0.689) $ (0.715) $ (0.737) $ (0.753) $ (0.785) $ (0.669)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, end
of year ............ $ 9.410 $10.570 $ 9.820 $ 9.430 $ 9.120 $ 9.570 $ 9.570 $ 9.260 $10.180
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(2) ...... (4.82)% 14.90% 11.67% 11.33% 2.83% 7.96% 11.94% (1.64)% 8.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (000 omitted) $2,171,901 $2,090,482 $1,491,904 $1,178,454 $1,063,131 $988,267 $849,875 $860,547 $615,771
Ratio of net
expenses to
average daily net
assets(3)(b) ..... 1.51% 1.67% 1.79% 1.86% 1.90% 1.91% 1.93% 1.78% 0.63%+
Ratio of net
investment income
to average daily
net assets(b) .... 5.54% 5.43% 5.88% 6.31% 6.50% 6.66% 6.98% 6.78% 7.86%+
PORTFOLIO TURNOVER(4) -- 10% 54% 54% 15% 10% 19% 15% 13%
*Period from the start of business, December 19, 1985, to September 30, 1986.
+Computed on an annualized basis.
NOTES:
<FN>
(a) Certain of the above per-share figures for the period ended September 30,
1986 are based on average shares outstanding during the period.
(b) On June 12, 1987, the Securities and Exchange Commission adopted a new rule
which requires sales commissions paid to the Principal Underwriter under the
Distribution Plan to be treated as an operating expense rather than a charge
to paid-in capital. Beginning with the year ended September 30, 1987, the
Fund changed its policy from charging such commissions to paid-in capital to
recognizing them as operating expenses. Had the rule been in effect for the
year ended September 30, 1986, the annualized ratios of expenses and net
investment income to average net assets would have been 1.63% and 6.86%,
respectively.
(1) Distributions from paid-in capital for the years ended September 30, 1986
through 1992 have been restated to conform with the treatment permitted
under current financial reporting standards.
(2) Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date.
(3) Includes the Fund's share of National Municipals Portfolio's allocated
expenses for the year ended September 30, 1994 and for the period from
February 1, 1993 to September 30, 1993.
(4) Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover for the period since the Fund transferred substantially all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM THE
REGULAR FEDERAL INCOME TAX. The Fund seeks to meet its investment objective by
investing its assets in the National Municipals Portfolio (the "Portfolio"), a
separate registered investment company which invests primarily in municipal
obligations (described below) which are rated at least investment grade by a
major rating agency or, if unrated, determined to be of at least investment
quality by the Investment Adviser.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS ASSETS DURING PERIODS OF NORMAL MARKET CONDITIONS) IN
DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES AND POSSESSIONS
OF THE UNITED STATES, AND THE DISTRICT OF COLUMBIA AND THEIR POLITICAL
SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, THE INTEREST ON WHICH IS EXEMPT
FROM THE REGULAR FEDERAL INCOME TAX. The foregoing policy is a fundamental
policy of both the Fund and the Portfolio, which may not be changed unless
authorized by a vote of the shareholders of the Fund or the investors in the
Portfolio, as the case may be, except that the Fund may also invest its
investable assets in the Portfolio or in another open-end investment company
with substantially the same investment objectives, policies and restrictions as
the Fund.
At least 65% of the net assets of the Portfolio will normally be invested in
municipal obligations rated at least investment grade at the time of investment
(which are those rated Baa or higher by Moody's Investors Service, Inc.
("Moody's") or BBB or higher by either Standard & Poor's Ratings Group ("S&P")
or by Fitch Investors Service, Inc. ("Fitch"), or, if unrated, determined by the
Investment Adviser to be of at least investment grade quality. 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. The Portfolio will invest less than 35% of its net
assets 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. Securities rated below BBB or
Baa are commonly known as "junk bonds". The Portfolio may retain an obligation
whose rating drops below B after its acquisition if such retention is considered
desirable by the Portfolio's Investment Adviser. See "Credit Quality -- Risks."
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. Public purpose municipal bonds include general obligation and revenue
bonds. General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility.
Municipal notes include bond anticipation, tax anticipation, revenue
anticipation and construction loan notes. Bond, tax and revenue anticipation
notes are short-term obligations that will be retired with the proceeds of an
anticipated bond issue, tax revenue or facility revenue, respectively.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from the regular Federal income tax applicable to individuals (and
corporations), but such interest (including a distribution by the Fund derived
from such interest) is treated as a tax preference item which could subject the
recipient to or increase his liability for the Federal alternative minimum tax;
as at September 30, 1994, the Portfolio had 30.45% of its net assets invested in
such private activity bonds. For corporate shareholders, the Fund's
distributions derived from interest on all municipal obligations (whenever
issued) is included in "adjusted current earnings" for purposes of the Federal
alternative minimum tax applicable to corporations (to the extent not already
included in alternative minimum taxable income as income attributable to private
activity bonds).
The Omnibus Budget Reconciliation Act of 1993 changed the federal income tax
treatment of market discount on long-term tax-exempt municipal obligations
(i.e., obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 from taxable capital gain to taxable ordinary
income. A long-term debt obligation is generally treated as acquired at a market
discount if the secondary market purchase price is less than (i) the stated
principal amount payable at maturity, in the case of an obligation that does not
have original issue discount or (ii) in the case of an obligation that does have
original issue discount, the sum of the issue price and any original issue
discount that accrued before the obligation was purchased. The Portfolio may
acquire municipal obligations at a market discount from time to time, and the
Fund's distributions will (when so required) include taxable income reflecting
the realization of such accrued discount by the Portfolio and its allocation to
the Fund.
MATURITY. It is expected that the Portfolio will normally contain substantial
amounts of long-term municipal obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since the Portfolio's objective is to provide current income, the
Portfolio will invest in municipal obligations with an emphasis on income and
not on stability of the Portfolio's net asset value. The average maturity of the
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although the Portfolio will normally attempt to invest substantially all of
its assets in municipal obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its assets in short-term obligations the
interest on which is subject to regular Federal income tax. Such short-term
taxable obligations may include, but are not limited to, certificates of
deposit, commercial paper, short-term notes and obligations issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities. During
periods of adverse market conditions, the Portfolio may temporarily invest more
than 20% of its assets in such short-term taxable obligations, which will be
rated no lower than investment grade.
DIVERSIFIED STATUS. The Portfolio is a "diversified" investment company under
the Investment Company Act of 1940. This means that with respect to 75% of its
total assets (1) the Portfolio may not invest more than 5% of its total assets
in the securities of any one issuer (except U.S. Government obligations) and (2)
the Portfolio may not own more than 10% of the outstanding voting securities of
any one issuer. Since municipal obligations are not voting securities, there is
no limit on the percentage of a single issuer's obligations which the Portfolio
may own so long as it does not invest more than 5% of its total assets in the
securities of that issuer. Consequently, the Portfolio may invest in a greater
percentage of the outstanding securities of a single issuer than would an
investment company which invests in voting securities. There is no
diversification requirement with respect to the remaining 25% of the Portfolio's
total assets, so that all of such assets may be invested in the securities of
any one issuer. To the extent that the Portfolio is less diversified than that
of other investment companies, it may be subject to an increased risk of loss if
the issuer is unable to make interest or principal payments or if the market
value of such securities declines.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in municipal
obligations of issuers located in the same state or in municipal obligations of
the same type, including without limitation the following: general obligations
of states and localities; lease rental obligations of state and local
authorities; obligations of state and local housing finance authorities,
municipal utilities systems or public housing authorities; obligations for
hospitals or life care facilities; or industrial development or pollution
control bonds issued for electric utility systems, steel companies, paper
companies or other purposes. This may make the Portfolio more susceptible to
adverse economic, political, or regulatory occurrences affecting a particular
category of issuers. For example, health-care related issuers are susceptible to
medicaid reimbursement policies, and national and state health care legislation.
As the Portfolio's concentration in the securities of a particular category of
issuer increases, so does the potential for fluctuation in the value of the
Fund's shares.
- --------------------------------------------------------------------------------
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF THE FUND AND THE PORTFOLIO ARE NOT FUNDAMENTAL
POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE
PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF THE FUND'S SHAREHOLDERS OR THE
INVESTORS IN THE PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES WERE MADE IN
THE FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT OBJECTIVES
DIFFERENT FROM THE OBJECTIVES WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE
TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
- --------------------------------------------------------------------------------
MUNICIPAL LEASES. The Portfolio may invest in municipal leases and
participations therein which frequently involve special risks. Municipal leases
are obligations in the form of a lease or installment purchase which is issued
by state or local governments to acquire equipment and facilities. Income from
such obligations is generally exempt from local and state taxes in the state of
issuance. "Participations" in such leases are undivided interests in a portion
of the total obligation. Participations entitle their holders to receive a pro
rata share of all payments under the lease. A trustee is usually responsible for
administering the terms of the participation and enforcing the participants'
rights in the underlying lease. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for governmental
issuers to acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. State debt-issuance limitations
are deemed to be inapplicable 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 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. The Portfolio may invest in zero coupon bonds, which debt
obligations which do not require the periodic payment of interest and are issued
at a significant discount from their face value. Such bonds experience greater
volatility in market value due to changes in interest rates than debt
obligations which provide for regular payments of interest. The Portfolio will
accrue income on such bonds for tax and accounting purposes in accordance with
applicable law, the Fund's proportionate share of which income is distributable
to shareholders. Because no cash is received at the time such income is accrued,
the Portfolio may be required to liquidate other portfolio securities to
generate cash that the Fund may withdraw from the Portfolio to enable the Fund
to satisfy its distribution obligations.
INVERSE FLOATERS. The Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may alter this
tendency, however. Although volatile, inverse floaters typically offer the
potential for yields exceeding the yields available on fixed rate bonds with
comparable credit quality and maturity. These securities usually permit the
investor to convert the floating rate to a fixed rate (normally adjusted
downward), and this optional conversion feature may provide a partial hedge
against rising rates if exercised at an opportune time. Inverse floaters are
leveraged because they provide two or more dollars of bond market exposure for
every dollar invested.
CREDIT QUALITY -- RISKS. Many municipal obligations offering current income are
in the lowest investment grade category (Baa or BBB), lower categories or may be
unrated. As indicated above, the Portfolio may invest in municipal obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which the Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations may
have some quality and protective characteristics, these characteristics can be
expected to be offset or outweighed by uncertainties or major risk exposures to
adverse conditions. Lower rated and comparable unrated municipal obligations are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated and comparable unrated municipal obligations are also more
likely to react to real or perceived developments affecting market and credit
risk than are more highly rated obligations, which react primarily to movements
in the general level of interest rates. The Portfolio may retain defaulted
obligations in its portfolio when such retention is considered desirable by the
Investment Adviser. In the case of a defaulted obligation, the Portfolio may
incur additional expense seeking recovery of its investment. Municipal
obligations held by the Portfolio which are rated below investment grade but
which, subsequent to the assignment of such rating, are backed by escrow
accounts containing U.S. Government obligations may be determined by the
Investment Adviser to be of investment grade quality for purposes of the
Portfolio's investment policies. The Portfolio's holdings of obligations rated
below investment grade generally will be less than 35% of its net assets. In the
event the rating of an obligation held by the Portfolio is downgraded, causing
the Portfolio to exceed this limitation, the Investment Adviser will (in an
orderly fashion within a reasonable period of time) dispose of such obligations
as it deems necessary in order to comply with the foregoing limitation. See the
Appendix to this Prospectus for the asset composition of the Portfolio for the
fiscal year ended September 30, 1994. For a description of the Moody's, S&P and
Fitch ratings, see the Statement of Additional Information.
INSURED OBLIGATIONS. The Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of the Fund's shares.
MARKET CONDITIONS. The management of the Portfolio believes that, in general,
the secondary market for some municipal obligations (including issues which are
privately placed with the Portfolio) is less liquid than that for taxable debt
obligations or for large issues of municipal obligations that trade in a
national market. No established resale market exists for certain of the
municipal obligations in which the Portfolio may invest. The market for
obligations rated below investment grade is also likely to be less liquid than
the market for higher rated obligations. These considerations may restrict the
availability of such obligations, may affect the choice of securities sold to
meet redemption requests and may have the effect of limiting the Portfolio's
ability to sell or dispose of such securities. Also, valuation of such
obligations may be more difficult.
NET ASSET VALUE FLUCTUATION. The net asset value of the Fund will change in
response to fluctuations in prevailing interest rates and changes in the value
of the securities held by the Portfolio. When interest rates decline, the value
of securities already held by the Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of existing portfolio security holdings can
be expected to decline. Therefore, an investment in shares of the Fund will not
constitute a complete investment program.
SHORT-TERM TRADING. The Portfolio may sell securities in anticipation of a
market decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what the Portfolio believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the overall
demand for or supply of various types of municipal obligations or changes in the
investment objectives of investors. Such trading may be expected to increase the
portfolio turnover rate and the expenses incurred in connection with such
trading. The Portfolio anticipates that its annual portfolio turnover rate will
generally not exceed 100% (excluding turnover of securities having a maturity of
one year or less).
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than the Portfolio agreed to pay for them. The Portfolio will not
accrue income in respect of a when-issued security prior to its stated delivery
date. The Portfolio will maintain in a segregated account sufficient assets to
cover its outstanding purchase obligations.
SECURITIES LENDING. The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets.
FUTURES AND OPTIONS TRANSACTIONS. To hedge against changes in interest rates,
the Portfolio may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on futures contracts. The Portfolio may
also enter into closing purchase and sale transactions with respect to such
contracts and options. The futures contracts may be based on various debt
securities (such as U.S. Government securities), securities indices and other
financial instruments and indices. The Portfolio will engage in futures and
related options transactions for bona fide hedging or non-hedging purposes as
defined in regulations of the Commodity Futures Trading Commission. The
Portfolio will engage in such transactions for non-hedging purposes only in
order to enhance total return by using a futures position as a lower cost
substitute for a securities position that the Portfolio is otherwise authorized
to enter into.
The Portfolio may not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no other percentage
limitations on the Portfolio's transactions on future contracts or options on
futures, except that at least 80% of the Portfolio's assets will be invested in
municipal obligations as described above. These transactions involve brokerage
costs, require margin deposits and, in the case of futures contracts and options
requiring the Portfolio to purchase securities, require the Portfolio to
segregate liquid high grade debt securities in an amount equal to the underlying
value of such contracts and options. In addition, while transactions in futures
contracts and options on futures may reduce certain risks, such transactions
themselves involve (1) liquidity risk that contractual positions cannot be
easily closed out in the event of market changes, (2) correlation risk that
changes in the value of hedging positions may not match the market fluctuations
intended to be hedged (especially given that the only futures contracts
currently available to hedge municipal obligations are futures on various U.S.
Government securities and on municipal securities indices), (3) market risk that
an incorrect prediction by the Investment Adviser of interest rates may cause
the Portfolio to perform less well than if such positions had not been entered
into, and (4) skills different from those needed to select portfolio securities.
Distributions by the Fund from any net income or gains realized on the
Portfolio's transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- -------------------------------------------------------------------------------
THE FUND IS A 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, the
shares are fully paid and nonassessable by the Trust and redeemable as described
under "How to Redeem Fund Shares". Shareholders are entitled to one vote for
each full share held. Fractional shares may be voted proportionately. Shares
have no preemptive or conversion rights and are freely transferable. Upon
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND IS TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The Portfolio, as
well as the Trust, intends to comply with all applicable Federal and state
securities laws. The Portfolio's Declaration of Trust provides that the Fund and
other entities investing in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance exists and the Portfolio itself is unable to meet its
obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund
investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio,
which is a separate investment company with an identical investment objective.
Therefore, the Fund's interest in securities owned by the Portfolio is indirect.
In addition to selling an interest to the Fund, the Portfolio may sell interests
to other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions of the Portfolio, see "The
Fund's Investment Objective" and "How the Fund and the Portfolio Invest their
Assets". Further information regarding investment practices may be found in the
Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio. Any such change
of the investment objective of the Fund or the Portfolio will be preceded by
thirty days advance written notice to the shareholders of the Fund or the
investors in the Portfolio, as the case may be. In the event the Fund withdraws
all of its assets from the Portfolio, or the Board of Trustees of the Trust
determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, the Board of Trustees of
the Trust would consider what action might be taken, including investing all the
assets of the Fund in another pooled investment entity or retaining an
investment adviser to manage the Fund's assets in accordance with its investment
objective. The Fund's investment performance may be affected by a withdrawal of
all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which invest
in the Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110
(617) 482-8260. Smaller funds investing in the Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio, the remaining funds may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take actions to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate boards may
be considered. For further information concerning the Tustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
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THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- -------- ---------------- ---------- -----------
1 up to $500 million ...................... 0.300% 3.00%
2 $500 million but less than $1 billion ... 0.275% 2.75%
3 $1 billion but less than $1.5 billion ... 0.250% 2.50%
4 $1.5 billion but less than $2 billion ... 0.225% 2.25%
5 $2 billion but less than $3 billion ..... 0.200% 2.00%
6 $3 billion and over ..................... 0.175% 1.75%
As at September 30, 1994, the Portfolio had net assets of $2,210,936,286.
For the fiscal year ended September 30, 1994 the Portfolio paid BMR advisory
fees respectively (equivalent to 0.44% of the Portfolio's average net assets for
such period).
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio. The Portfolio is responsible for the payment of
all expenses other than those expressly stated to be payable by BMR under the
investment advisory agreement.
Thomas M. Metzold has acted as the portfolio manager of the Portfolio since
December 17, 1993. He has been a Vice President of Eaton Vance since 1991 and of
BMR since inception, and an employee of Eaton Vance since 1987.
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 Portfolio and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company. Eaton Vance Corp. through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as the Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the Fund are made pursuant to a written plan
adopted in accordance with the Rule. The Plan is subject to, and complies with,
the sales charge rule of the National Association of Securities Dealers, Inc.
(the "NASD Rule"). The Plan is described in the Statement of Additional
Information, and the following is a brief description of the salient features of
the Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay
sales commissions and distribution fees to the Principal Underwriter only after
and as a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 5% of the amount
received by the Fund for each share sold and (ii) distribution fees calculated
by applying the rate of 1% over the prime rate then reported in The Wall Street
Journal to the outstanding balance of Uncovered Distribution Charges (as
described below) of the Principal Underwriter. The Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to a financial 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 the Fund pursuant to the Plan.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Accordingly, the Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. The Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under the Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts of all payments received by the
Principal Underwriter from the Fund pursuant to the Plan, including any
contingent deferred sales charges, have exceeded the total expenses theretofore
incurred by such organization in distributing shares of the Fund. Total expenses
for this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
The amount payable to the Principal Underwriter pursuant to the Plan with
respect to each day will be accrued on such day as a liability of the Fund and
will accordingly reduce the Fund's net assets upon such accrual, all in
accordance with generally accepted accounting principles. The amount payable on
each day is limited to 1/365 of .75% of the Fund's net assets on such day. The
level of the Fund's net assets changes each day and depends upon the amount of
sales and redemptions of Fund shares, the changes in the value of the
investments held by the Portfolio, the expenses of the Fund and the Portfolio
accrued on such day, income on portfolio investments of the Portfolio accrued
and allocated to the Fund on such day, and any dividends and distributions
declared by the Fund. The Fund does not accrue possible future payments as a
liability of the Fund or reduce the Fund's current net assets in respect of
unknown amounts which may become payable under the Plan in the future because
the standards for accrual of a liability under such accounting principles have
not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid to the Principal Underwriter whenever there exist Uncovered
Distribution Charges under the Plan.
The provisions of the Plan relating to payments to the Principal Underwriter
are also included in the Distribution Agreement between the Trust on behalf of
the Fund and the Principal Underwriter. The Plan continues in effect through and
including April 28, 1994, and shall continue in effect indefinitely thereafter
for so long as such continuance is approved at least annually by the vote of
both a majority of (i) the Trustees of the Trust who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to the Plan (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office, and the Distribution
Agreement contains a similar provision.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of the Fund's
operations would cause a large portion of the sales commissions attributable to
a sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan.
For the fiscal year ended September 30, 1994, the Fund paid sales
commissions under the Plan to the Principal Underwriter aggregating $16,368,102,
representing 0.75% of the Fund's average daily net assets for such year. (The
Plan prior to July 7, 1993 permitted payments of sales commissions and
distribution fees which would not exceed 1% of the Fund's average net assets.)
As at September 30, 1994 the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$58,986,000 (which amount was equivalent to 2.7% of the Fund's net assets on
such day).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees have implemented the Plan by authorizing the Fund to pay service fees
to Authorized Firms in amounts not exceeding .25% per annum of the Fund's
average daily net assets based on the value of Fund shares sold by such Firms
and remaining outstanding for at least one year. As permitted by the NASD Rule,
such payments are made for personal services and/or the maintenance of
shareholder accounts. Service fees paid to Authorized Firms are separate and
distinct from the sales commissions and distribution fees payable by the Fund to
the Principal Underwriter, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges of
the Principal Underwriter. For the fiscal year ended September 30, 1994, the
Fund made service fee payments to Authorized Firms in an amount equivalent to
0.16% of the Fund's average daily net assets for such year.
The Plan as currently implemented by the Trustees authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to Authorized Firms which may be equivalent, on an aggregate basis during
any fiscal year of the Fund, to 1% of the Fund's average daily net assets for
such year. The Fund believes that the combined rate of all these payments may be
higher than the rate of payments made under distribution plans adopted by other
investment companies pursuant to Rule 12b-1. It is anticipated that the Eaton
Vance organization will profit by reason of the operation of the Plan through
increases in the Fund's assets (thereby increasing the advisory fees payable to
BMR by the Portfolio) resulting from sale of Fund shares and through amounts
paid under the Plan to the Principal Underwriter and contingent deferred sales
charges paid to the Principal Underwriter.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to financial service firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain financial
service firms whose representatives are expected to sell significant amounts of
shares. In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to financial service firms at the time of
sale by notice to the selling group.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests substantially all of its assets in an interest in the Portfolio, the
Fund's net asset value will reflect the value of its interest in the Portfolio
(which, in turn, reflects the underlying value of the Portfolio's assets and
liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per share and the public offering price based
thereon. It is the Authorized Firms' responsibility to transmit orders promptly
to the Principal Underwriter, which is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio) based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Municipal obligations will normally be valued on the
basis of valuations furnished by a pricing service. For further information
regarding the valuation of the Portfolio's assets, see "Determination of Net
Asset Value" in the Statement of Additional Information. Eaton Vance owns 77.3%
of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
- --------------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE.
- --------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's Transfer Agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Draft Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities or securities and cash accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT or as soon thereafter as possible. The number of Fund
shares to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities, divided by the applicable net asset value per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the current price for such securities but does not
guarantee the best available. Eaton Vance will absorb any transaction costs,
such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon National Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon National Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult his
or her tax adviser with respect to the particular Federal, state and local tax
consequences of exchanging securities for Fund shares.
- --------------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
- --------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents must be endorsed by the record owner (s)
exactly as the shares are registered and the signature(s) must be guaranteed by
a member of either the Securities Transfer Association's STAMP program or the
New York Stock Exchange's Medallion Signature Program, or certain banks, savings
and loan institutions, credit unions, securities dealers, securities exchanges,
clearing agencies and registered securities associations as required by a
regulation of the Securities and Exchange Commission and acceptable to The
Shareholder Services Group, Inc. In addition, in some cases, good order may
require the furnishing of additional documents such as where shares are
registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by The
Shareholder Services Group, Inc., the Fund will make payment in cash for the
shares as of the date determined above, reduced by the amount of any applicable
contingent deferred sales charges described below and Federal income tax
required to be withheld. Although the Fund normally expects to make payment in
cash for redeemed shares, the Trust, subject to compliance with applicable
regulations, has reserved the right to pay the redemption price of shares of the
Fund, either totally or partially, by a distribution in kind of readily
marketable securities withdrawn by the Fund from the Portfolio. The securities
so distributed would be valued pursuant to the Portfolio's valuation procedures.
If a shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of those shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem Fund accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by the Fund if the cause of the
low account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years
of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge.
This contingent deferred sales charge is imposed on any redemption the amount of
which exceeds the aggregate value at the time of redemption of (a) all shares in
the account purchased more than six years prior to the redemption, (b) all
shares in the account acquired through reinvestment of monthly distributions and
capital gains distributions, and (c) the increase, if any, in the value of all
other shares in the account (namely those purchased within the six years
preceding the redemption) over the purchase price of such shares. Redemptions
are processed in a manner to maximize the amount of redemption proceeds which
will not be subject to a contingent deferred sales charge; i.e., each redemption
will be assumed to have been made first from the exempt amounts referred to in
clauses (a), (b) and (c) above, and second through liquidation of those shares
in the account referred to in clause (c) on a first-in-first-out basis. Any
contingent deferred sales charge which is required to be imposed on share
redemptions will be made in accordance with the following schedule:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ........................ 5%
Second ....................... 5%
Third ........................ 4%
Fourth ....................... 3%
Fifth ........................ 2%
Sixth ........................ 1%
Seventh and following ........ 0%
For shares purchased prior to August 1, 1994, the contingent deferred sales
charge for redemptions within the first year after purchase is 6%. In
calculating the contingent deferred sales charge upon the redemption of Fund
shares acquired in an exchange of shares of a fund in the Eaton Vance Marathon
Group of Funds (see "The Eaton Vance Exchange Privilege"), the contingent
deferred sales charge schedule applicable to the shares at the time of purchase
will apply and the purchase of Fund shares acquired in the exchange is deemed to
have occurred at the time of the original purchase of exchanged shares. The
contingent deferred sales charge will be waived for shares redeemed (1) pursuant
to a Withdrawal Plan (see "Eaton Vance Shareholder Services"), (2) as part of a
required distribution from a tax-sheltered retirement plan or (3) following the
death of all beneficial owners of such shares, provided the redemption is
requested within one year of death (a death certificate and other applicable
documents may be required).
No contingent deferred sales charge will be imposed on shares of the Fund
which have been sold to Eaton Vance, its affiliates, their respective employees
or clients. The contingent deferred sales charge will be paid to the Principal
Underwriter or the Fund. When paid to the Principal Underwriter it will reduce
the amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. See "Distribution Plan."
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THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED
SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF THE FUND'S SHARES
AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT
PERFORMANCE AND REINVESTMENT OF DIVIDENDS TO $12,000. THE INVESTOR THEN MAY
REDEEM UP TO $2,000 OF SHARES WITHOUT INCURRING A CONTINGENT DEFERRED SALES
CHARGE. IF THE INVESTOR SHOULD REDEEM $3,000 OF SHARES, A CHARGE WOULD BE
IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 5% BECAUSE IT WAS IN
THE SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE CHARGE WOULD BE $50.
- --------------------------------------------------------------------------------
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish all shareholders with
information necessary for preparing Federal and state income tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. The Fund will not issue share certificates
except upon request.
At least quarterly, the shareholder will receive a statement showing
complete details of any transaction and the current share balance in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to The Shareholder
Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account at the then current net asset value. Furthermore,
the distribution option on the account will be automatically changed to the
Share Option until such time as the shareholder selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its transfer agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
- --------------------------------------------------------------------------------
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF THE FUND BY SENDING A CHECK FOR $50 OR MORE.
- --------------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of one or more other funds in the
Eaton Vance Marathon Group of Funds (currently Eaton Vance Equity-Income Trust,
Eaton Vance Liquid Assets Trust (until March 31, 1995), and any EV Marathon
fund, except EV Marathon Short-Term Strategic Income Fund, Eaton Vance Prime
Rate Reserves and any EV Marathon Limited Maturity Fund) which excludes the tax
free funds with a limited maturity) which are distributed with a contingent
deferred sales charge, on the basis of net asset value per share of each fund at
the time of the exchange, provided that such exchange offers are available only
in states where shares of the fund being acquired may be legally sold. Effective
March 31, 1995, the EV Marathon Group of Funds will also include EV Marathon
Short-Term Strategic Income Fund, any EV Marathon Limited Maturity Fund and,
when publicly available, Eaton Vance Money Market Fund (availability expected on
or about April 3, 1995).
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. Each exchange
must involve shares which have a net asset value of at least $1,000. The
exchange privilege may be changed or discontinued without penalty. Shareholders
will be given sixty (60) days notice prior to any termination or material
amendment of the exchange privilege. The Fund does not permit the exchange
privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the other funds are available from Authorized Firms or from the
Principal Underwriter.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon redemption of shares
acquired in an exchange, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the time
of the original purchase of the exchanged shares. For the contingent deferred
sales charge schedule applicable to the EV Marathon Group of Funds (except EV
Marathon Short-Term Strategic Income Fund and Class I shares of any EV Marathon
Limited Maturity Fund), see "How to Redeem Fund Shares". The contingent deferred
sales charge schedule applicable to EV Marathon Short-Term Strategic Income Fund
or Class I shares of any EV Marathon Short-Term Strategic Income Fund or Class I
shares of any EV Marathon Limited Maturity Fund is 3%, 2.5%, 2% or 1% in the
event of a redemption occurring in the first, second, third or fourth year,
respectively, after the original share purchase.
Shares of other funds may be exchanged for Fund shares at net asset value
per share, but subject to any restrictions or qualifications set forth in the
current prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.
provided the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call The Shareholder Services Group, Inc. at 800-
262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday, 9:00
a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange
must be registered in the same name(s) and with the same address as the shares
being exchanged. Neither the Fund, the Principal Underwriter nor The Shareholder
Services Group, Inc. will be responsible for the authenticity of exchange
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated are genuine have been followed. Telephone
instructions will be tape recorded. In times of drastic economic or market
changes, a telephone exchange may be difficult to implement. An exchange may
result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
may be mailed directly to The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104 at any time -- whether or not dividends are reinvested.
The name of the shareholder, the Fund and the account number should accompany
each investment.
BANK DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for these accounts.
WITHDRAWAL PLAN: You can draw on your shareholdings systematically with monthly
or quarterly checks in an aggregate amount that does not exceed annually 12% of
the original account balance. Such amount will not be subject to a contingent
deferred sales charge. See "How to Redeem Fund Shares". A minimum deposit of
$5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND,
provided that the reinvestment is effected within 30 days after such repurchase
or redemption. Shares are sold to a reinvesting shareholder at the next
determined net asset value following timely receipt of a written purchase order
by the Principal Underwriter or by the Fund (or by the Fund's Transfer Agent).
To the extent that any shares are sold at a loss and the proceeds are reinvested
in shares of the Fund, (or other shares of the Fund are acquired within the
period beginning 30 days before and ending 30 days after the date of redemption)
some or all of the loss generally will not be allowed as a tax deduction.
Shareholders should consult their tax advisers concerning the tax consequences
of reinvestments.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIOS, 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 monthly on the fifteenth day of each
month or the next business day thereafter. The Fund anticipates that for tax
purposes, the entire distribution, whether paid in cash or additional shares of
the Fund, will constitute tax-exempt income to 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 continue to treat the amount of the entire
distribution as the tax cost basis of the additional shares acquired by reason
of such reinvestment. Daily distribution crediting will commence on the day that
collected funds for the purchase of Fund shares are available at the Transfer
Agent. Shareholders will receive timely Federal income tax information as to the
tax-exempt or taxable status of all distributions made by the Fund during the
calendar year. The Fund's net realized capital gains, if any, consist of the net
realized capital gains allocated to the Fund by the Portfolio for tax purposes,
after taking into account any available capital loss carryovers; the Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
In order to qualify as a regulated investment company under the Internal
Revenue Code (the "Code"), the Fund must satisfy certain requirements relating
to the sources of its income, the distribution of its income, and the
diversification of its assets. In satisfying these requirements, the Fund will
treat itself as owning its proportionate share of each of the Portfolio's assets
and as entitled to the income of the Portfolio properly attributable to such
share.
- --------------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP
UNDER THE CODE, THE PORTFOLIO ALSO DOES NOT PAY FEDERAL INCOME OR EXCISE
TAXES.
- ------------------------------------------------------------------------------
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 6). 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
included therein 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.
Tax-exempt distributions received from the Fund are includable in the tax
base for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible. Further, entities or persons who
are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of the Fund. "Substantial
user " is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The current yield for the Fund will be calculated by dividing the net
investment income per share during a recent 30 day period by the maximum
offering price per share (net asset value) of the Fund on the last day of the
period and annualizing the resulting figure. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by 1 minus the tax
rate. The Fund's average annual total return is determined by computing the
average annual percentage change in value of $1,000 invested at the maximum
sales charge (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The Fund may
publish annual and cumulative total return figures from time to time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
Investors should note that the Fund's yield is calculated using a standardized
formula, the income component of which is computed from the yields to maturity
of all debt obligations held by the Portfolio based on prescribed methods (with
all purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month.
Performance figures published by the Fund which do not include the effect of
any applicable contingent deferred sales charge would be reduced if it were
included. If the expenses of the Fund or the Portfolio are paid by Eaton Vance,
the Fund's performance will be higher.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield or total return for
any prior period should not be considered a representation of what an investment
may earn or what an investor's yield or total return may be in any future
period.
<PAGE>
<TABLE>
APPENDIX
NATIONAL MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
<CAPTION>
MUNICIPAL BONDS MUNICIPAL BONDS
MOODY'S RATING S&P'S RATING
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
---------- ----------
<S> <C> <C> <C>
Aaa ....................................... 17.10 AAA ................................... 17.18
Aa ........................................ 5.08 AA+ ................................... 0.13
Aa2 ....................................... 3.29 AA .................................... 6.09
A1 ........................................ 4.53 AA- ................................... 4.63
A ......................................... 2.64 A+ .................................... 2.41
A2 ........................................ 0.97 A ..................................... 2.59
Baa1 ...................................... 7.92 A- .................................... 2.23
Baa ....................................... 7.00 BBB+ .................................. 3.74
Baa2 ...................................... 3.88 BBB ................................... 8.06
Baa3 ...................................... 3.95 BBB- .................................. 3.00
Ba1 ....................................... 4.48 BB+ ................................... 4.09
Ba ........................................ 0.20 BB .................................... 8.92
Ba3 ....................................... 0.45 BB- ................................... 0.97
B2 ........................................ 0.55 B ..................................... 0.45
B3 ........................................ 0.97 Unrated ............................... 33.14
Unrated ................................... 34.59 Cash & Equiv .......................... 2.40
Cash & Equiv .............................. 2.40 -----
----- 100.00%
100.00%
</TABLE>
The chart above indicates the weighted average composition of the securities
held by the Portfolio for the period ended September 30, 1994, with the debt
securities rated by Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group separated into the indicated categories. The weighted average
indicated above was calculated on a dollar weighted basis and was computed as at
the end of each month during the fiscal year. The chart does not necessarily
indicate what the composition of the securities held by the Portfolio's will be
in the current and subsequent fiscal years.
For a description of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group ratings of municipal bonds, see the Appendix to the Statement of
Additional Information.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON NATIONAL
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-HMP
Prospectus
FEBRUARY 1, 1995
EV MARATHON
NATIONAL MUNICIPALS
FUND
<PAGE>
EV CLASSIC FLORIDA TAX FREE FUND
EV CLASSIC MASSACHUSETTS TAX FREE FUND
EV CLASSIC MISSISSIPPI TAX FREE FUND
EV CLASSIC NEW YORK TAX FREE FUND
EV CLASSIC OHIO TAX FREE FUND
EV CLASSIC RHODE ISLAND TAX FREE FUND
EV CLASSIC WEST VIRGINIA TAX FREE FUND
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1995
EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV CLASSIC NATIONAL MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUSES DATED FEBRUARY 1, 1995
The Trustees of each Fund and the corresponding Portfolio have amended
the nonfundamental investment policy governing call options to read "neither the
Fund nor the Portfolio may engage in options, futures or forward transactions if
more than 5% of its net assets, as measured by the aggregate of the premiums
paid by the Fund or the Portfolio, would be so invested". THE FOLLOWING
DISCLOSURE IS ADDED TO THE SECTION "WHEN-ISSUED SECURITIES":
The Portfolio may also purchase instruments that give the
Portfolio the option to purchase a municipal obligation when and if
issued.
May 5, 1995 C-CPS
<PAGE>
EV CLASSIC TAX FREE FUNDS
EV CLASSIC FLORIDA TAX FREE FUND
EV CLASSIC MASSACHUSETTS TAX FREE FUND
EV CLASSIC MISSISSIPPI TAX FREE FUND
EV CLASSIC NEW YORK TAX FREE FUND
EV CLASSIC OHIO TAX FREE FUND
EV CLASSIC RHODE ISLAND TAX FREE FUND
EV CLASSIC WEST VIRGINIA TAX FREE FUND
THE EV CLASSIC TAX FREE 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 February 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., 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.
- --------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1995
<PAGE>
TABLE OF CONTENTS
Shareholder and Fund Expenses ............................................ 3
The Funds' Financial Highlights .......................................... 5
The Funds' Investment Objectives ......................................... 7
How the Funds and the Portfolios Invest their Assets ..................... 7
Organization of the Funds and the Portfolios ............................. 14
Management of the Funds and the Portfolios ............................... 16
Distribution Plans ....................................................... 18
Valuing Fund Shares ...................................................... 21
How to Buy Fund Shares ................................................... 22
How to Redeem Fund Shares ................................................ 23
Reports to Shareholders .................................................. 24
The Lifetime Investing Account/Distribution Options ...................... 25
The Eaton Vance Exchange Privilege ...................................... 26
Eaton Vance Shareholder Services ......................................... 27
Distributions and Taxes .................................................. 27
Performance Information .................................................. 29
Appendix -- State Specific Information ................................... 30
<PAGE>
SHAREHOLDER AND FUND EXPENSES (1)
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees 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)(2) 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND
------- ------------- -----------
Investment Adviser Fee(3) 0.46% 0.46% 0.10%
Rule 12b-1 Distribution (and Service) Fees 0.95 0.95 0.95
Other Expenses 0.20 0.25 0.30
---- ---- ----
Total Operating Expenses 1.61% 1.66% 1.35%
==== ==== ====
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:
FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND
------- ------------- -----------
1 Year ............................. $26 $27 $24
3 Years ............................. 51 52 43
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
1 Year .............................. $16 $17 $14
3 Years ............................. 51 52 43
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------- ---- ------------ -------------
Investment Adviser Fee(3) 0.46% 0.45% 0.11% 0.12%
Rule 12b-1 Distribution
(and Service) Fees 0.95 0.95 0.95 0.95
Other Expenses 0.25 0.25 0.30 0.30
---- ---- ---- ----
Total Operating Expenses 1.66% 1.65% 1.36% 1.37%
==== ==== ==== ====
<PAGE>
EXAMPLE
An investor would pay the following expenses (including a contingent deferred
sales charge in the case of redemption during the first year after purchase) on
a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end
of each period:
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------- ---- ------------ -------------
1 Year ................ $27 $27 $24 $24
3 Years ................ 52 52 43 43
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
1 Year ................ $17 $17 $14 $14
3 Years ................ 52 52 43 43
Notes:
(1) The purpose of the above tables and Examples is to summarize the aggregate
expenses of the Funds and the Portfolios and to assist investors in
understanding the various costs and expenses that investors in each Fund
will bear directly or indirectly. The Trustees of the Trust believe that
over time the aggregate per share expenses of a Fund and its corresponding
Portfolio should be approximately equal to the per share expenses which the
Fund would incur if the Trust retained the services of an investment adviser
and the assets of the Fund were invested directly in the type of securities
being held by its corresponding Portfolio. Since the Funds do not yet have a
sufficient operating history, the percentages indicated as Annual Fund and
Allocated Portfolio Operating Expenses and the amounts included in the
Examples are based on both the Funds' and their corresponding Portfolios'
projected fees and expenses for the current fiscal year ending September 30,
1995. The tables and Examples should not be considered a representation of
past or future expenses and actual expenses may be greater or less than
those shown. For further information regarding the expenses of 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". Because the Funds make payments under their
Distribution Plans adopted under Rule 12b-1, a long-term shareholder may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by a rule of the National Association of Securities Dealers, Inc.
See "Distribution Plans." 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".
(2) The contingent deferred sales charge will be imposed on the redemption of
shares purchased on or after January 30, 1995. No contingent deferred sales
charge is imposed on (a) shares purchased more than one year prior to
redemption, (b) shares acquired through the reinvestment of dividends and
distributions or (c) any appreciation in value of other shares in the
account (see "How to Redeem Fund Shares"), and no such charge is imposed on
exchanges of Fund shares for shares of one or more other funds listed under
"The Eaton Vance Exchange Privilege."
(3) Each Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the
fee schedule on page 16.
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which has
been so included in reliance upon the report of Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and auditing.
Further information regarding the performance of a Fund is contained in its
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter, Eaton Vance Distributors, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994
-----------------------------
FLORIDA MASSACHUSETTS MISSISSIPPI NEW YORK
FUND<F1> FUND<F1> FUND<F1> FUND<F1>
------- ------------- ----------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of period $10.000 $10.000 $10.000 $10.000
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ...... $ 0.351 $ 0.350 $ 0.338 $ 0.344
Net realized and
unrealized loss on
investments .............. (0.967) (0.933) (1.024) (0.869)
------- ------- ------- -------
Total loss from
operations ............. $(0.616) $(0.583) $(0.686) $(0.525)
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net
investment income ........ $(0.351) $(0.350) $(0.338) $(0.344)
In excess of net
investment income ........ $(0.063) $(0.067) $(0.056) $(0.071)
------- ------- ------- -------
Total distributions ...... $(0.414) $(0.417) $(0.394) $(0.415)
------- ------- ------- -------
NET ASSET VALUE, end
of period .................. $ 8.970 $ 9.000 $ 8.920 $ 9.060
======= ======= ======= =======
TOTAL RETURN<F3> ............. (6.36)% (6.02)% (6.96)% (5.45)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) ............ $ 8,063 $ 3,743 $2,800 $5,137
Ratio of net
expenses to average
daily net assets<F4> ..... 1.63%<F2> 1.61%<F2> 1.24%<F2> 1.64%<F2>
Ratio of net investment
income to average daily
net assets ............... 4.51%<F2> 4.55%<F2> 4.42%<F2> 4.41%<F2>
<FN>
* For the period from its start of business to September 30, 1994, the operating
expenses of the Funds and the Portfolios may reflect a reduction of expenses
by the Administrator or Investment Adviser. Had such actions not been taken,
net investment income per share and the ratios would have been as follows:
</FN>
<S> <C> <C> <C> <C>
NET INVESTMENT
INCOME PER SHARE ............. $ 0.331 $ 0.260 $ 0.246 $ 0.293
======= ======= ======= =======
RATIOS (As a percentage of
average daily net assets):
Expenses<F4> ............. 1.88%<F2> 2.78%<F2> 2.45%<F2> 2.29%<F2>
Net investment
income ................. 4.26%<F2> 3.38%<F2> 3.21%<F2> 3.76%<F2>
<CAPTION>
(See footnotes on page 6.)
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1994
-----------------------------
OHIO RHODE ISLAND WEST VIRGINIA
FUND<F1> FUND<F1> FUND<F1>
------- ------------ -------------
<S> <C> <C> <C>
NET ASSET VALUE,
beginning of period $10.000 $10.000 $10.000
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income .................... $ 0.348 $ 0.347 $ 0.326
Net realized and
unrealized loss on
investments ............... (0.992) (1.046) (0.959)
------- ------- -------
Total loss from
operations ............ (0.644) (0.699) (0.633)
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income .. (0.348) (0.347) (0.326)
In excess of net
investment income ......... (0.068) (0.064) (0.061)
------- ------- -------
Total distributions ....... (0.416) (0.411) (0.387)
------- ------- -------
NET ASSET VALUE,
end of period ................. $ 8.940 $ 8.890 $ 8.980
======= ======= =======
TOTAL RETURN<F3> .............. (6.75)% (7.29)% (6.53)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) ............. $ 2,111 $ 3,919 $ 1,897
Ratio of net expenses to
average daily net assets<F4> 1.60%<F2> 1.23%<F2> 1.28%<F2>
Ratio of net investment
income to average daily
net assets ................ 4.42%<F2> 4.50%<F2> 4.53%<F2>
<FN>
* For the period from the start of business to September 30, 1994, the operating
expenses of the Funds and the Portfolios may reflect a reduction of expenses
by the Administrator or Investment Adviser. Had such actions not been taken,
net investment income per share and the ratios would have been as follows:
</FN>
<S> <C> <C> <C>
NET INVESTMENT
INCOME PER SHARE ............. $ 0.241 $ 0.299 $ 0.204
======= ======= =======
RATIOS (As a percentage of
average daily net assets):
Expenses<F4> .............. 2.96%<F2> 1.85%<F2> 2.66%<F2>
Net investment
income .................. 3.06%<F2> 3.88%<F2> 2.15%<F2>
<FN>
Footnotes:
<F1> For the Florida, Massachusetts, Mississippi, New York, Ohio, Rhode Island
and West Virginia Funds, the Financial Highlights are for the period from
the start of business, December 3, 1993, December 7, 1993, December 7,
1993, December 6, 1993, December 7, 1993, December 7, 1993 and December 13,
1993, respectively, to September 30, 1994.
<F2> Computed on an annualized basis.
<F3> 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.
<F4> Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
</FN>
</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 FLORIDA TAX FREE FUND (the "Florida Fund") seeks to provide
current income exempt from regular Federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Tax Free Portfolio (the
"Florida Portfolio").
EV CLASSIC MASSACHUSETTS TAX FREE FUND (the "Massachusetts Fund") seeks to
provide current income exempt from regular Federal income tax and Massachusetts
state personal income taxes. The Massachusetts Fund seeks to meet its objective
by investing its assets in the Massachusetts Tax Free Portfolio (the
"Massachusetts Portfolio").
EV CLASSIC MISSISSIPPI TAX FREE FUND (the "Mississippi Fund") seeks to
provide current income exempt from regular Federal income tax and Mississippi
State personal income taxes. The Mississippi Fund seeks to meet its objective by
investing its assets in the Mississippi Tax Free Portfolio (the "Mississippi
Portfolio").
EV CLASSIC NEW YORK TAX FREE FUND (the "New York Fund") seeks to provide
current income exempt from regular Federal income tax and New York State and New
York City personal income taxes. The New York Fund seeks to meet its objective
by investing its assets in the New York Tax Free Portfolio (the "New York
Portfolio").
EV CLASSIC OHIO TAX FREE FUND (the "Ohio Fund") seeks to provide current
income exempt from regular Federal income tax and Ohio State personal income
taxes. The Ohio Fund seeks to meet its objective by investing its assets in the
Ohio Tax Free Portfolio (the "Ohio Portfolio").
EV CLASSIC RHODE ISLAND TAX FREE FUND (the "Rhode Island Fund") seeks to
provide current income exempt from regular Federal income tax and Rhode Island
State personal income taxes. The Rhode Island Fund seeks to meet its objective
by investing in the Rhode Island Tax Free Portfolio (the "Rhode Island
Portfolio").
EV CLASSIC WEST VIRGINIA TAX FREE FUND (the "West Virginia Fund") seeks to
provide current income exempt from regular Federal income tax and West Virginia
State personal income taxes. The West Virginia Fund seeks to meet its objective
by investing its assets in the West Virginia Tax Free Portfolio (the "West
Virginia Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- --------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN 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 STATE TAXES SET FORTH ABOVE. The foregoing
policy is a fundamental policy of each Fund and its corresponding Portfolio,
which may not be changed unless authorized by a vote of the Fund's shareholders
or that Portfolio's investors, as the case may be.
At least 75% of the net assets of the Florida Portfolio, at least 70% of
the net assets of the Massachusetts Portfolio and New York Portfolio, and at
least 80% of the net assets of the Mississippi Portfolio, Ohio Portfolio, Rhode
Island Portfolio and West Virginia Portfolio will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. 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.
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. Securities rated below BBB or Baa are
commonly known as "junk bonds". A Portfolio may retain an obligation whose
rating drops below B after its acquisition if such retention is considered
desirable by the Investment Adviser. See "Credit Quality - Risks." 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. Public purpose municipal bonds include general obligation and revenue
bonds. General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility.
Municipal notes include bond anticipation, tax anticipation, revenue
anticipation, and construction loan notes. Bond, tax and revenue anticipation
notes are short-term obligations that will be retired with the proceeds of an
anticipated bond issue, tax revenue or facility revenue, respectively.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing. Under normal market conditions, a
Portfolio will invest at least 65% of its total assets in obligations issued by
its respective State or its political subdivisions.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from the regular Federal income tax applicable to individuals (and
corporations), but such interest (including a distribution by a 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. A Portfolio may not invest more than 20% of its net assets in these
obligations and obligations subject to regular Federal income tax and/or the
relevant State taxes. As at September 30, 1994, the Portfolios had invested in
private activity bonds as follows (as a percentage of net assets): Florida
Portfolio (8.7%); Massachusetts Portfolio (11.2%); Mississippi Portfolio (8.7%);
New York Portfolio (8.1%); Ohio Portfolio (8.0%); Rhode Island Portfolio
(10.5%); and West Virginia Portfolio (11.3%). For corporate shareholders, each
Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
Federal alternative minimum tax applicable to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
The Omnibus Budget Reconciliation Act of 1993 changed the Federal income
tax treatment of market discount on long-term tax-exempt municipal obligations
(i.e., obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 from taxable capital gain to taxable ordinary
income. A long-term debt obligation is generally treated as acquired at a market
discount if the secondary market purchase price is less than (i) the stated
principal amount payable at maturity, in the case of an obligation that does not
have original issue discount or (ii) in the case of an obligation that does have
original issue discount, the sum of the issue price and any original issue
discount that accrued before the obligation was purchased. Each Portfolio may
acquire municipal obligations at a market discount from time to time, and its
corresponding Fund's distributions will (when so required) include taxable
income reflecting the realization of such accrued discount by the Portfolio and
its allocation to the Fund.
MATURITY. It is expected that each Portfolio will normally contain substantial
amounts of long-term municipal obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since each Portfolio's objective is to provide current income, each
Portfolio will invest in obligations with an emphasis on income and not on
stability of a Portfolio's net asset value. The average maturity of a
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although each Portfolio will normally attempt to invest substantially all
of its assets in municipal obligations issued by its respective State, the
Portfolio may, under normal market conditions, invest up to 20% of its net
assets in short-term obligations the interest on which is subject to regular
Federal income tax, Federal alternative minimum tax and/or the relevant State
taxes. Such short-term taxable obligations may include, but are not limited to,
certificates of deposit, commercial paper, short-term notes and obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities. During periods of adverse market conditions, a Portfolio may
temporarily invest more than 20% of its assets in such short-term taxable
obligations, which will be rated no lower than investment grade.
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 (the "Territories"). 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: general obligations of its respective State and its political
subdivisions; lease rental obligations of State and local authorities;
obligations of State and local housing finance authorities, municipal utilities
systems or public housing authorities; obligations for hospitals or life care
facilities; or industrial development or pollution control bonds issued for
electric utility systems, steel companies, paper companies or other purposes.
This may make 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.
<PAGE>
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 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.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 as a "non-diversified" investment company allows it to
invest, with respect to 50% of its assets, more than 5% of its assets in the
securities of any issuer. Because of the small number of municipal obligations
issued by a State, 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. A Portfolio will also be subject to an increased risk of
loss if the issuer is unable to make interest or principal payments or if the
market value of such securities declines. It is also possible that sufficient
suitable State municipal obligations will not be available for a Portfolio to
achieve its investment objective.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is entered into by a State or local government to acquire
equipment and facilities. Interest income from such obligations is generally
exempt from local and State taxes in the State of issuance. "Participations" in
such leases are undivided interests in a portion of the total obligation.
Participations entitle their holders to receive a pro rata share of all payments
under the lease. A trustee is usually responsible for administering the terms of
the participation and enforcing the participants' rights in the underlying
lease. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by a Portfolio may be deemed
illiquid for purposes of the Portfolio's 15% limitation on investing in illiquid
securities, unless determined by the Investment Adviser, pursuant to guidelines
adopted by the Trustees of each 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 a Portfolio. In the
event a Portfolio acquires an unrated municipal lease obligation, the Investment
Adviser will be responsible for determining the credit quality of such
obligation on an ongoing basis, including an assessment of the likelihood that
the lease may or may not be cancelled.
ZERO COUPON BONDS. Each Portfolio may invest in zero coupon bonds, which are
debt obligations that do not require the periodic payment of interest and are
issued at a significant discount from their face value. Such bonds experience
greater volatility in market value due to changes in interest rates than
municipal obligations that provide for regular payments of interest. A Portfolio
will accrue income on such bonds for tax and accounting purposes in accordance
with applicable law, the corresponding Fund's proportionate share of which
income is distributable to shareholders of that Fund. Because no cash is
received at the time such income is accrued, a Portfolio may be required to
liquidate other portfolio securities to generate cash that a Fund may withdraw
from the Portfolio to satisfy the Fund's distribution obligations.
INVERSE FLOATERS. Each Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may alter this
tendency, however. Although volatile, inverse floaters typically offer the
potential for yields exceeding the yields available on fixed rate bonds with
comparable credit quality and maturity. These securities usually permit the
investor to convert the floating rate to a fixed rate (normally adjusted
downward), and this optional conversion feature may provide a partial hedge
against rising interest rates if exercised at an opportune time. Inverse
floaters are leveraged because they provide two or more dollars of bond market
exposure for every dollar invested.
CREDIT QUALITY -- RISKS. 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. 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.
Each Portfolio's holdings of obligations rated below investment grade generally
will be less than 35% of its net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary in
order to comply with the foregoing limitation. For a description of municipal
obligation ratings, see the Statement of Additional Information.
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.
MARKET CONDITIONS. The management of the Portfolios believes that, in general,
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 for large issues of municipal
obligations that trade in a national market. 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. These considerations may
restrict the availability of such obligations, may affect the choice of
securities sold to meet redemption requests and may limit a Portfolio's ability
to sell or dispose of such securities. Also, valuation of such obligations may
be more difficult.
NET ASSET VALUE FLUCTUATION. The net asset value of 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. An investment in shares of a Fund will not
constitute a complete investment program.
SHORT-TERM TRADING. Each Portfolio may sell securities in anticipation of a
market decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what a 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
portfolio turnover rate and the expenses incurred in connection with such
trading. Each 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. 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. A Portfolio will not
accrue income in respect of when-issued securities prior to the stated delivery
date of such securities. Each Portfolio will maintain in a segregated account
sufficient assets to cover its outstanding purchase obligations.
<PAGE>
SECURITIES LENDING. Each 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 each 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. Each 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, a 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, a Portfolio may pay lending fees to such borrowers. A 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 a Fund of any income
realized by its corresponding Portfolio from securities loans will be taxable.
If the management of a Portfolio decides to make securities loans, it is
intended that the value of the securities loaned would not exceed 30% of the
Portfolio's total assets.
FUTURES AND OPTIONS TRANSACTIONS. To hedge against changes in interest rates,
each Portfolio may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on futures contracts. Each Portfolio may
also enter into closing purchase and sale transactions with respect to such
contracts and options. The futures contracts may be based on various debt
securities (such as U.S. Government securities), securities indices and other
financial instruments and indices. Each Portfolio will engage in futures and
related options transactions for bona fide hedging or non-hedging purposes as
defined in or permitted by regulations of the Commodity Futures Trading
Commission. A Portfolio will engage in such transactions for non-hedging
purposes only in order to enhance total return by using a futures position as a
lower cost substitute for a securities position that the Portfolio is otherwise
authorized to enter into.
A Portfolio may not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no other percentage
limitations on a Portfolio's transactions in futures contracts or options on
futures, except that at least 80% of the Portfolio's net assets will be invested
in municipal obligations as described above. These transactions involve
brokerage costs, require margin deposits and, in the case of futures contracts
and options requiring a Portfolio to purchase securities, require the Portfolio
to segregate liquid high grade debt securities in an amount equal to the
underlying value of such contracts and options. In addition, while transactions
in futures contracts and options on futures may reduce certain risks, such
transactions themselves involve (1) liquidity risk that contractual positions
cannot be easily closed out in the event of market changes, (2) correlation risk
that changes in the value of hedging positions may not match the market
fluctuations intended to be hedged (especially given that the only futures
contracts currently available to hedge municipal obligations are futures on
various U.S. Government securities and on municipal securities indices), (3)
market risk that an incorrect prediction by the Investment Adviser of interest
rates may cause a Portfolio to perform less well than if such positions had not
been entered into, and (4) skills different from those needed to select
portfolio securities. Distribution by a Fund from any net income or gains
realized on its corresponding Portfolio's transactions in futures and options on
futures will be taxable.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- --------------------------------------------------------------------------------
EACH FUND IS A 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. Upon
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 IS 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.
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 different
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. 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 funds investing in a Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from a Portfolio, the remaining funds 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. 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%
<PAGE>
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory
fees for the fiscal year ended September 30, 1994 equivalent to the following
annualized percentage of average daily net assets:
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1994 ADVISORY FEE
--------- ------------------ ------------
Florida ................. $772,123,153 0.46%
Massachusetts ........... 308,539,780 0.46%
Mississippi ............. 29,476,651 0.19%(1)
New York ................ 655,646,776 0.46%
Ohio .................... 324,411,553 0.45%
Rhode Island ............ 38,119,918 0.21%(2)
West Virginia ........... 40,473,310 0.23%(3)
(1) To enhance the net income of the Mississippi Portfolio, BMR made a reduction
of its advisory fee in the full amount of such fee and BMR was allocated
$19,780 of expenses related to the operation of such Portfolio.
(2) To enhance the net income of the Rhode Island Portfolio, BMR made a
reduction of its advisory fee in the full amount of such fee.
(3) To enhance the net income of the West Virginia Portfolio, BMR made a
reduction of its advisory fee in the full amount of such fee.
BMR also furnishes for the use of each Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolios. Each Portfolio is responsible for the payment of
all expenses other than those expressly stated to be payable by BMR under its
investment advisory agreement.
Nicole Anderes has acted as the portfolio manager of the New York and Rhode
Island Portfolios since they commenced operations. She joined Eaton Vance and
BMR as a Vice President in January 1994. Prior to joining Eaton Vance, she was a
Vice President and portfolio manager at Lazard Freres Asset Management
(1992-1994) and a Vice President and Manager -- Municipal Research at Roosevelt
& Cross (1978-1992).
Timothy T. Browse has acted as the portfolio manager of the West Virginia
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior to
joining Eaton Vance, he was a municipal bond trader at Fidelity Management &
Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Mississippi
Portfolio since it commenced operations. She has been a Vice President of Eaton
Vance and BMR since 1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He has been a Vice President of
Eaton Vance since 1987 and of BMR since inception.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance since joining the firm in 1991 and of BMR since its inception. Prior to
joining Eaton Vance, he was a portfolio manager at Fidelity Management &
Research Company (1986-1991).
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the 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.
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940. Rule
12b-1 permits a mutual fund, such as a Fund, to finance distribution activities
and bear expenses associated with the distribution of its shares provided that
any payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). Each Fund's Plan is described in the Statement of Additional
Information, and the following is a brief description of the salient features of
the Plans. Each Fund's Plan provides that the Fund, subject to the NASD Rule,
will pay sales commissions and distribution fees to the Principal Underwriter
only after and as a result of the sale of shares of the Fund. On each sale of
Fund shares (excluding reinvestment of distributions) a Fund will pay the
Principal Underwriter amounts representing (i) sales commissions equal to 6.25%
of the amount received by a Fund for each share sold and (ii) distribution fees
calculated by applying the rate of 1% over the prime rate then reported in The
Wall Street Journal to the outstanding balance of Uncovered Distribution Charges
(as described below) of the Principal Underwriter. On sales 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 in connection with the sale of Fund shares.
<PAGE>
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Under its Plan a Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. Each Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under a Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under a Fund's
Plan if at any point in time the aggregate amounts of all payments made to the
Principal Underwriter pursuant to a Fund's Plan, including any contingent
deferred sales charges, have exceeded the total expenses theretofore incurred by
such organization in distributing shares of the Fund. Total expenses for this
purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
The amount payable by a Fund to the Principal Underwriter pursuant to its
Plan with respect to each day will be accrued on such day as a liability of a
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 by a Fund is limited to 1/365 of .75% of the Fund's net assets on such
day. The level of a 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 corresponding Portfolio, the expenses of the Fund and of
the corresponding Portfolio accrued and allocated to the Fund on such day,
income on portfolio investments of the corresponding Portfolio accrued and
allocated to the Fund on such day, and any dividends and distributions declared
on Fund shares. A 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 its Plan in the future because the
standards for accrual of a liability under such accounting principles have not
been satisfied.
Each Fund's Plan provides that a 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 a Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
The provisions of the Plans relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreements between the Trust on behalf of the Funds and the
Principal Underwriter. Each Plan provides that it shall continue in effect
through and including April 28, 1995, and shall continue in effect indefinitely
thereafter for so long as such continuance is approved at least annually by the
vote of both a majority of (i) the Trustees of the Trust who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to the Plan (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office, and each Distribution
Agreement contains a similar provision. A Plan and Distribution Agreement may be
terminated at any time by vote of a majority of the Rule 12b-1 Trustees, or by a
vote of a majority of the outstanding voting securities of the Fund.
Periods with a high level of sales of Fund shares accompanied by a low
level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Fund shares accompanied by a
high level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of 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.
For the period from each Fund's start of business to the fiscal year ended
September 30, 1994, each Fund paid or accrued sales commissions under its Plan
equivalent to .75% (annualized) of such Fund's average daily net assets. As of
September 30, 1994, the outstanding Uncovered Distribution Charges of the
Principal Underwriter on such day calculated under the Plan amounted to
approximately $692,000 (equivalent to 8.6% of net assets) in the case of the
Florida Fund, $270,000 (equivalent to 7.2% of net assets) in the case of the
Massachusetts Fund, $234,000 (equivalent to 8.4% of net assets) in the case of
the Mississippi Fund, $366,000 (equivalent to 7.1% of net assets) in the case of
the New York Fund, $208,000 (equivalent to 9.9% of net assets) in the case of
the Ohio Fund, $325,000 (equivalent to 8.3% of net assets) in the case of the
Rhode Island Fund, and $159,000 (equivalent to 8.4% of net assets) in the case
of the West Virginia Fund.
THE PLANS ALSO AUTHORIZE THE FUNDS 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 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. 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, all service fee payments are
made for personal services and/or the maintenance of shareholder accounts.
Service fees are separate and distinct from the sales commissions and
distribution fees payable by a Fund to the Principal Underwriter, and as such
are not subject to automatic discontinuance when there are no outstanding
Uncovered Distribution Charges of the Principal Underwriter. During the first
year after a purchase of Fund shares, the Principal Underwriter will retain the
service fee as reimbursement for the service fee payment made to the Authorized
Firm at the time of sale. For the period from each Fund's start of business to
the fiscal year ended September 30, 1994, 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.
Each Fund's Plan as currently implemented by the Trustees authorizes
payments of sales commissions, distribution fees and service fees to the
Principal Underwriter which may be equivalent, on an aggregate basis during any
fiscal year of the Fund, to .95% of the Fund's average daily net assets for such
year. The Funds believe that the combined rate of all these payments may be
higher than the rate of payments made under distribution plans adopted by other
investment companies pursuant to Rule 12b-1. Although the Principal Underwriter
will use its own funds (which may be borrowed from banks) to pay sales
commissions and service fees at the time of sale, it is anticipated that the
Eaton Vance organization will profit by reason of the operation of the Plans
through increases in the Funds' assets (thereby increasing the advisory fees
payable to BMR by the Portfolios) resulting from sale of Fund shares and through
amounts paid under the Plans to the Principal Underwriter and contingent
deferred sales charges paid to the Principal Underwriter.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of 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 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
substantially all of 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. Municipal obligations will normally be valued on the
basis of valuations furnished by a pricing service. For further information
regarding the valuation of the Portfolios' assets, see "Determination of Net
Asset Value" in the Statement of Additional Information. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Funds' and the Portfolios' custodian.
<PAGE>
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SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE.
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HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold.
An initial investment in a Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Funds' Transfer Agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Draft 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 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] Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic [State name] Tax Free 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 purchased on or after January 30, 1995
and redeemed within the first year of their purchase (except shares acquired
through the reinvestment of distributions) generally will be subject to a
contingent deferred sales charge. This contingent deferred sales charge is
imposed on any redemption the amount of which exceeds the aggregate value at the
time of redemption of (a) all shares in the account purchased more than one year
prior to the redemption, (b) all shares in the account acquired through
reinvestment of distributions, and (c) the increase, if any, of value in the
other shares in the account (namely those purchased within the year preceding
the redemption) over the purchase price of such shares. Redemptions are
processed in a manner to maximize the amount of redemption proceeds which will
not be subject to a contingent deferred sales charge; i.e., each redemption will
be assumed to have been made first from the exempt amounts referred to in
clauses (a), (b) and (c) above, and second through liquidation of those shares
in the account referred to in clause (c) on a first-in-first-out basis. Any
contingent deferred sales charge which is required to be imposed on share
redemptions will be equal to 1% of the net asset value of redeemed shares.
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed under
"The Eaton Vance Exchange Privilege," the purchase of Fund shares acquired in
the exchange is deemed to have occurred at the time of the original purchase of
exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance, its affiliates, to their respective employees or
clients. The contingent deferred sales charge will also be waived for shares
redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance Shareholder
Services"), (2) as part of a distribution from a retirement plan qualified under
Section 401, 403(b) or 457 of the Internal Revenue Code, or (3) as part of a
minimum required distribution from other tax-sheltered retirement plans. The
contingent deferred sales charge will be paid to the Principal Underwriter or
the Fund. When paid to the Principal Underwriter it will reduce the amount of
Uncovered Distribution Charges calculated under the Fund's Distribution Plan.
See "Distribution 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 year, each Fund will furnish its shareholders with
information necessary for preparing Federal and State tax returns.
<PAGE>
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.
<PAGE>
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UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
- --------------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of a Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Classic Group of Funds and, when publicly available,
Eaton Vance Money Market Fund (availability expected on or about April 3, 1995)
which are distributed with a contingent deferred sales charge, on the basis of
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
Eaton Vance Money Market Fund (when available) may be exchanged for Fund shares
at their respective net asset values per share, but subject to any restrictions
or qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.
provided the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call The Shareholder Services Group, Inc. at 800-
262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday, 9:00
a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange
must be registered in the same name(s) and with the same address as the shares
being exchanged. Neither the 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 DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for these accounts.
WITHDRAWAL PLAN: 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 30 days after such repurchase or
redemption. Shares are sold to a reinvesting shareholder at the next determined
net asset value following timely receipt of a written purchase order by the
Principal Underwriter or by a Fund (or by the Fund's Transfer Agent). To the
extent that any shares of a Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption) some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the 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 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.
In order to qualify as a regulated investment company under the Internal
Revenue Code (the "Code"), each Fund must satisfy certain requirements relating
to the sources of its income, the distribution of its income, and the
diversification of its assets. In satisfying these requirements, 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.
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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 (see page 8). 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.
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The current yield for each Fund will be calculated by dividing the net
investment income per share during a recent 30-day period by the maximum
offering price per share (net asset value) of the Fund on the last day of the
period and annualizing the resulting figure. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by one minus the tax
rate. Each Fund's average annual total return is determined by computing the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (net asset value) for specified periods ending with the
most recent calendar quarter, assuming reinvestment of all distributions. The
average annual total return calculation assumes a complete redemption of the
investment and the deduction of any contingent deferred sales charge at the end
of the period. The Funds may publish annual and cumulative total return figures
from time to time.
The Funds may also publish the distribution rate and/or the effective
distribution rate. Each Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current net asset
value 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.
Performance figures published by a Fund which do not include the effect of
any applicable contingent deferred sales charge would be reduced if it were
included.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's current yield or total return for
any prior period should not be considered a representation of what an investment
may earn or what an investor's yield or total return may be in any future
period. If the expenses of a Fund or its corresponding Portfolio are paid by
Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico. The bond ratings provided below are
current as of the date of this Prospectus and are based on economic conditions
which may not continue; moreover, there can be no assurance that particular bond
issues may not be adversely affected by changes in economic, political or other
conditions. Unless stated otherwise, the ratings indicated are for obligations
of the State. A State's political subdivisions may have different ratings which
are unrelated to the ratings assigned to State obligations.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner. The General Fund budget for 1994-95 includes
revenues of $14.6 billion (a 7.3% increase over 1993-94) and expenditures of
$14.3 billion (a 7.6% increase over 1993-94). Through November, 1994, actual
revenues were 1.6% ahead of projections. Unencumbered reserves are projected to
be $281 million, or 1.9% of expenditures for fiscal year 1995. Unemployment in
the State for November, 1994 was 6.8% compared to the national unemployment rate
of 5.6%.
In 1993, the State constitution was amended to limit the annual growth in
the assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the amendment
could have a negative impact on the financial performance of local governments
over time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Florida Fund shares in their
taxable intangible property if all of the Florida Fund's investments on the
annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. Government
obligations. The Florida Portfolio will normally attempt to invest substantially
all of its assets in tax-exempt obligations of Florida, the United States, the
Territories or political subdivisions of the United States or Florida ("Florida
obligations") and it will ensure that all of its assets held on the annual
assessment date are exempt from the Florida intanglibles tax. Accordingly the
value of the Florida Fund shares held by a shareholder should under normal
circumstances be exempt from the Florida intangibles tax.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-intensive
manufacturing industries to technology and service-based industries. The
unemployment rate was 6.4% as of October, 1994, while the national unemployment
rate was 5.8%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain debt
incurred to pay the fiscal 1990 deficit and certain Medicaid reimbursement
payments for prior years) was limited to 10%. In addition, the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, is limited. Property taxes are virtually
the only source of tax revenues available to cities and towns to meet local
costs. This limitation on cities and towns to generate revenues could create a
demand for increases in state-funded local aid. The recent difficulties
experienced by the Commonwealth have resulted in a substantial reduction in
local aid from the Commonwealth, which may create financial difficulties for
certain municipalities.
General obligations of Massachusetts are rated A, A+ and A+ by Moody's, S&P
and Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter ruling
(the "Ruling") from the Department of Revenue of The Commonwealth of
Massachusetts to the effect that it will be classified as a partnership for
Massachusetts tax purposes. The Ruling provides that, consequently, interest
income received by the Massachusetts Portfolio on (1) debt obligations issued by
The Commonwealth of Massachusetts or its political subdivisions, including
agencies or instrumentalities thereof ("Massachusetts Obligations"), (2) the
Governments of Puerto Rico, Guam, or the United States Virgin Islands
("Possessions Obligations"), or (3) the United States ("United States
Obligations") will be treated as if realized directly by investors in the
Massachusetts Portfolio. The Ruling concludes that, provided that an investor in
the Massachusetts Portfolio qualifies as a regulated investment company ("RIC")
under the Code and satisfies certain notice requirements of Massachusetts law,
(1) dividends paid by such a RIC that are treated as tax-exempt interest under
the Code and that are directly attributable to interest on Massachusetts
Obligations (including the RIC's allocable share of interest earned by the
Massachusetts Portfolio on such obligations) and (2) dividends paid by such a
RIC that are directly attributable to interest on Possessions Obligations or
United States Obligations (including the RIC's allocable share of interest
earned by the Massachusetts Portfolio on such obligations) will, in each case,
be excluded from Massachusetts gross income. Because the Massachusetts Fund
intends to continue to invest in the Massachusetts Portfolio, qualify for
treatment as a RIC under the Code, and satisfy the applicable notice
requirements, the Massachusetts Fund's distributions to its shareholders of its
allocable share of the interest received by the Massachusetts Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. The Massachusetts Fund has also been advised by its legal counsel that
distributions properly designated as capital gain dividends under the Code and
attributable to gains realized by the Massachusetts Portfolio and allocated to
the Massachusetts Fund on the sale of certain Massachusetts tax-exempt
obligations issued pursuant to statues that specifically exempt such gains from
Massachusetts taxation will also be exempt from Massachusetts personal income
tax. Other distributions from the Massachusetts Fund included in a shareholder's
Federal gross income, including distributions derived from net long-term capital
gains not described in the preceding sentence and net short-term capital gains,
are generally not exempt from Massachusetts personal income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for taxable
years beginning after 1995.
Distributions from the Massachusetts Fund will be included in net income,
and in the case of intangible property corporations, shares of the Massachusetts
Fund, will be included in net worth for purposes of determining the
Massachusetts excise tax on corporations subject to Massachusetts taxation.
MISSISSIPPI. The State's economic outlook has improved recently, in part due to
the strong growth exhibited by the manufacturing sector. The food and related
paper and allied product sectors have also experienced strong and steady growth.
Also, the governmental and wholesale/retail trade and service sectors have had
sound gains in employment. In recent years, the State has successfully expanded
its economy through technology-based research and education, and the Mississippi
banking system has exhibited relative strength and stability over the past
several years, a period characterized by a growing number of bank failures
nationwide. The construction and casino industries have also experienced growth
recently.
All State indebtedness must be authorized by legislation governing the
specific programs or projects to be financed. Such debt may include short- and
long-term indebtedness, self-supporting general obligation bonds, highway bonds
and other types of indebtedness. As of December 31, 1994, the State's total bond
indebtedness was $926.9 million. For the fiscal year ended June 30, 1993, the
constitutional debt limit was approximately $4.6 billion. State revenues were
$7.2 billion as of June 30, 1994.
General obligations of Mississippi are rated AA-, and Aa by S&P and
Moody's. S&P has a positive outlook for the State.
MISSISSIPPI TAXES. Under existing Mississippi law, interest received by a
Mississippi resident individual upon the obligations of the State of Mississippi
or political subdivisions thereof ("Mississippi obligations") are exempt from
Mississippi income tax. A recently adopted Mississippi Income Tax Regulation
provides a pass-through of the tax-exempt character of interest received by a
regulated investment company, such as the Mississippi Fund, upon distribution to
its shareholders where the Mississippi Fund directly owns such Mississippi
tax-exempt obligations. Under the new regulation, a taxpayer's pro rata portion
of interest dividends distributed by a regulated investment company is exempt
from Mississippi income tax to the extent that such pro rata portion represents
interest received by a regulated investment company from governmental securities
which would be exempt for Mississippi income tax purposes if such governmental
securities were directly held by the taxpayer. In this situation, however, the
Mississippi Fund will not own the Mississippi tax-exempt obligations directly
but will invest in the Mississippi Portfolio, which will own the Mississippi
tax-exempt obligations. There is no law addressing the Mississippi income tax
consequences to Mississippi resident individuals receiving interest dividends
from a regulated investment company, such as the Mississippi Fund, that
contributes its assets to a trust, such as the Mississippi Portfolio, in
exchange for an interest therein where the trust owns Mississippi tax-exempt
obligations and distributes the income therefrom to the regulated investment
company. In 1993, the Mississippi State Tax Commission issued a ruling stating
that a Mississippi resident taxpayer's pro rata portion of interest dividends
distributed by the Mississippi Fund will be non-taxable to the extent that such
pro rata portion represents interest received by the Mississippi Fund, either
directly or through the Mississippi Portfolio, from Mississippi tax-exempt
obligations, which would be exempt for Mississippi income tax purposes if such
tax-exempt obligations were directly held by the taxpayer. In the opinion of
Butler, Snow, O'Mara, Stevens & Cannada, PLLC, special Mississippi tax counsel
to the Mississippi Fund, a Mississippi resident individual's pro rata portion of
interest dividends distributed by the Mississippi Fund will be exempt from
Mississippi income tax to the extent that such pro rata portion (i) is excluded
from gross income under the Code and (ii) represents interest the Mississippi
Fund receives, either directly or through the Mississippi Portfolio, from
investments in Mississippi tax-exempt obligations.
NEW YORK. New York is the second most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. The State's general credit standing has
historically reflected its diverse and substantial economic base. However, as
the result of a recession ending in the first quarter of 1993, 560,000 jobs were
lost statewide (equal to 6.7% of the peak employment figure for 1989). Since the
first quarter of 1993, 100,130 jobs have been added, with nearly half of such
jobs occurring in the first quarter of 1994. In fiscal year 1993, however, the
State began the process of financial reform. The 1993 and 1994 financial plans
exceeded expectations and produced operating surpluses in both years.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in
recent years and currently continues to experience such difficulties owing, in
part, to lower than anticipated revenues. Because New York City taxes comprise
40% of the State's tax base, the City's difficulties adversely affect the State.
Both the State and the City will be constrained in addressing future fiscal
problems by their high current level of taxes.
In June, 1994, the Governor approved the 1994-1995 budget, which reduces
taxes by $476 million in the 1994-1995 fiscal year and by more than $1.6 billion
when fully implemented. A reduction in both State and City personal income taxes
scheduled to take effect in 1994 has been deferred for one year as a part of the
1994-1995 budget.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. New York City obligations are rated Baa1, A- and A- by
Moody's, S&P and Fitch, respectively. On January 17, 1995, S&P placed the City's
general obligation bonds on CreditWatch with negative implications as the result
of plans by the City to refund some of its debt to provide budget savings in its
1995 fiscal year. S&P stated that, by April, 1995, if the City continues to use
budget devices such as debt refundings or fails to get ongoing budget relief
from the State, S&P would lower the rating on New York City general obligation
debt to the "BBB" category. Any such downward revision could have an adverse
effect on the obligations held by the New York Portfolio.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income tax,
dividends paid by the New York Fund are exempt from New York State and New York
City income tax for individuals who reside in New York to the extent such
dividends are excluded from gross income for Federal income tax purposes and are
derived from interest payments on tax-exempt obligations issued by or on behalf
of New York State and its political subdivisions and agencies, and the
govenments of Puerto Rico, the U.S. Virgin Islands and Guam. Other distributions
from the New York Fund, including distributions derived from taxable ordinary
income and net short-term and long-term capital gains, are generally not exempt
from New York State or City personal income tax.
OHIO. The State's economy is reliant in part on durable goods manufacturing,
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, economic activity in Ohio tends to be more
cyclical than in some other states and in the nation as a whole. Unemployment
declined from 6.5% to 4.2% between November, 1993 and November, 1994. The
national unemployment rate in November, 1994 was 5.6%. In fiscal 1993, a
projected $520 million budget gap was addressed through tax increases and
appropriation cuts. The fiscal year 1994 budget was balanced, and the State's
General Revenue Fund had an ending fund balance of $560 million.
General obligations of Ohio are rated Aa and AA by S&P and Moody's,
respectively (except that highway obligations are rated Aaa by S&P). Fitch does
not currently rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law, individuals who are otherwise subject to the
Ohio personal income tax will not be subject to such tax on dividends paid by
the Ohio Fund to the extent such dividends properly attributable to interest on
obligations issued by or on behalf of the State of Ohio or its political
subdivisions or the agencies or instrumentalities thereof ("Ohio obligations").
Dividends paid by the Ohio Fund also will be excluded from the net income base
of the Ohio corporation franchise tax to the extent such dividends are excluded
from gross income for Federal income tax purposes or properly attributable to
interest on Ohio obligations. However, the Ohio Fund's shares will be included
in the tax base computing the Ohio corporation franchise tax on the net worth
basis. These conclusions regarding Ohio taxation are based on the assumption
that the Ohio Fund will continue to qualify as a regulated investment company
under the Code and that at all times at least 50% of the value of the total
assets of the Ohio Fund will consist of obligations of the State of Ohio and its
political subdivisions or similar obligations of other states or their
subdivisions determined, to the extent the Ohio Fund invests in the Ohio
Portfolio, by treating the Ohio Fund as owning its proportionate share of the
assets owned by the Ohio Portfolio.
RHODE ISLAND. In an attempt to compensate for budget problems in 1990 and 1991,
the State's budget for fiscal 1993 incorporated a combination of service budget
reductions, aggressive pursuit of federal program receipts and revenue
enhancements. In 1993, the State recorded an $8.4 million operating surplus,
boosting the undesignated general fund balance to $8.7 million. Combined with
budget stabilization reserves, the State ended fiscal 1993 with $32 million in
available monies (equal to 1.4% of expenditures). The fiscal year 1994 budget
excluded nearly all gasoline tax revenues and transportation expenditures, which
will now be recorded in a new dedicated surface transportation fund. Fiscal 1994
revenue estimates were $14 million above the enacted budget. Unaudited
expenditures in excess of revised revenues are, however, expected to yield a
$2.9 million drawdown of balances to $5.8 million. The 1995 budget includes
budgeted reserves of $46.5 million (equal to 3% of fiscal 1995 expenditures).
In January, 1991, the collapse of the Rhode Island Share and Deposit
Indemnity Corporation precipitated the closure of 45 financial institutions with
a total deposit liability of approximately $1.7 billion. In response, the State
created the Rhode Island Depositors Economic Protection Corporation, a public
corporation, ("DEPCO"), to assist in the resolution of the resulting banking
crisis. By the end of 1992, substantially all of the frozen deposits had been
repaid or otherwise made available to depositors through the reopening, sale or
liquidation of the closed institutions. DEPCO currently has outstanding
approximately $475.8 million of special obligation bonds, the proceeds of which
were used to facilitate the sale of certain institutions and the payout of
frozen deposits. Receipts from .6% of the State's sales and use tax rate are
dedicated to a special revenue fund to be used for repayment of the special
obligation bonds. In addition, DEPCO has outstanding approximately $130 million
of general obligation bonds, which it expects will be repaid primarily out of
the proceeds from liquidating assets acquired from certain of the failed
institutions. Over the next 20 years, DEPCO is also obligated to pay former
depositors approximately $54 million.
Under the budget enacted for fiscal year 1993, State aid programs to Rhode
Island cities and towns is slated to be $379.9 million, representing a net
increase over fiscal year 1992 of $34.5 million. In fiscal year 1994, Rhode
Island cities and towns are expected to start receiving 1% of State tax revenue
(approximately $12.6 million) as a distribution through the general revenue
sharing program.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A-1 by Moody's and AA- with a stable outlook from S&P. The
State reportedly ranks fourth among all states in per capita tax-supported debt
load. General obligations of Rhode Island are rated AA-, A-1 and AA-, by S&P,
Moody's and Fitch, respectively.
RHODE ISLAND TAXES. The Rhode Island Fund obtained an opinion from Hinckley,
Allen & Snyder, special tax counsel to the Rhode Island Fund, that under Rhode
Island law, dividends paid by the Rhode Island Fund are exempt from Rhode Island
state income tax for individuals who reside in Rhode Island to the extent such
dividends are excluded from gross income for Federal income tax purposes and are
derived from interest payments on obligations of Rhode Island, its political
subdivisions, the Territories or the United States ("Rhode Island obligations").
Other distibutions from the Rhode Island Fund, including distributions from
capital gains, are generally not exempt from Rhode Island state personal income
tax.
WEST VIRGINIA. The West Virginia economy is heavily dependent on the
resource-based industries, specifically coal, chemical and steel. Although the
State's economy has begun to rebound from the economic recession, the State
unemployment rate remains significantly above the national average. For October,
1994, the State unemployment rate was 7.9% down from the October, 1993 level of
10.4%, but well above the national average of 5.8%. The service and wood sectors
and tourism are expected to lead the improving State economy. The manufacturing
sector has contracted in past years, and mining employment is 16% below the
level which existed in 1990. Per capita income for the state is approximately
78% of the national average.
Despite attempts to make State government more efficient, the State
continues to experience revenue shortfalls. In addition, the State was faced
with significant unfunded liabilities in its Workers Compensation Fund, Teachers
Retirement Fund and certain other retirement systems in 1992. A Public
Retirement Task Force was established to examine the State's retirement systems
and to make recommendations to place the systems on a sound financial basis. The
current status of this situation was unavailable. On a budgetary basis, for
1992, the General Fund was drawn down by $41 million to $27 million. In 1993,
the State realized a $44 million operating surplus. The Governor had imposed a
5% spending cut on most state agencies during 1993.
The West Virginia Supreme Court of Appeals recently declared a School
Building Authority to be unconstitutional. Although prior issuances were
unaffected by the ruling, the State cannot issue lease obligations going
forward. There can be no assurance as to the level of future debt borrowing and
the possible implications on the financial position of the State.
General obligations of West Virginia are currently rated A+, A1 and A+, by
S&P, Moody's and Fitch, respectively.
WEST VIRGINIA TAXES. In the opinion of Bowles, Rice, McDavid, Graff & Love,
special West Virginia tax counsel to the West Virginia Fund, under existing West
Virginia law, in 1991 the West Virginia Department of Tax and Revenue issued
Technical Assistance Advisory 91-002 which was declared to be of precedential
value. This Technical Assistance Advisory addresses liability for West Virginia
personal income tax on interest and dividend income received by investors in
regulated investment companies. Accordingly, under existing law, as long as the
West Virginia Fund qualifies as a separate "regulated investment company" under
the Code, that portion of exempt-interest dividends that represents interest
income received by the West Virginia Fund from obligations of the United States
and its possessions and interest or dividend income received by the West
Virginia Fund on obligations or securities of any authority commission or
instrumentality of the United States or of the State of West Virginia, which is
exempt from West Virginia State income tax by Federal or West Virginia law, is
exempt from West Virginia Personal Income Tax. This exemption does not apply to
any portion of interest income on obligations of any state other than West
Virginia, regardless of any exemption provided under Federal law. In the event
the West Virginia Fund fails to qualify as a separate "regulated investment
company", the foregoing exemption may be unavailable or substantially limited.
The Technical Assistance Advisory contains a more specific, although
nonexclusive, list of obligations and authorities which are exempt from
taxation. The Technical Assistance Advisory also confirms that interest on
indebtedness incurred (directly or indirectly) by a shareholder of the West
Virginia Fund to purchase or carry shares of the West Virginia Fund will not be
deductible for West Virginia income purposes.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for August, 1994 was approximately 14.5%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
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>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
C-TFC2/1P
The EV Classic
Tax Free Funds
Prospectus
February 1, 1995
* EV Classic Florida
Tax Free Fund
* EV Classic Massachusetts
Tax Free Fund
* EV Classic Mississippi
Tax Free Fund
* EV Classic New York
Tax Free Fund
* EV Classic Ohio
Tax Free Fund
* EV Classic Rhode Island
Tax Free Fund
* EV Classic West Virginia
Tax Free Fund
<PAGE>
EV CLASSIC FLORIDA TAX FREE FUND
EV CLASSIC MASSACHUSETTS TAX FREE FUND
EV CLASSIC MISSISSIPPI TAX FREE FUND
EV CLASSIC NEW YORK TAX FREE FUND
EV CLASSIC OHIO TAX FREE FUND
EV CLASSIC RHODE ISLAND TAX FREE FUND
EV CLASSIC WEST VIRGINIA TAX FREE FUND
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1995
EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV CLASSIC NATIONAL MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUSES DATED FEBRUARY 1, 1995
The Trustees of each Fund and the corresponding Portfolio have amended
the nonfundamental investment policy governing call options to read "neither the
Fund nor the Portfolio may engage in options, futures or forward transactions if
more than 5% of its net assets, as measured by the aggregate of the premiums
paid by the Fund or the Portfolio, would be so invested". THE FOLLOWING
DISCLOSURE IS ADDED TO THE SECTION "WHEN-ISSUED SECURITIES":
The Portfolio may also purchase instruments that give the
Portfolio the option to purchase a municipal obligation when and if
issued.
May 5, 1995 C-CPS
<PAGE>
EV CLASSIC NATIONAL MUNICIPALS FUND
IN SEEKING CURRENT INCOME, EV CLASSIC NATIONAL MUNICIPALS FUND (THE "FUND")
IS A MUTUAL FUND SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM THE REGULAR
FEDERAL INCOME TAX. THE FUND INVESTS ITS ASSETS IN NATIONAL MUNICIPALS PORTFOLIO
(THE "PORTFOLIO"), A DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. THE FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated February 1, 1995 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's Principal Underwriter,
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110 (telephone
(800) 225-6265). The Portfolio's investment adviser is Boston Management and
Research (the "Investment Adviser"), a wholly-owned subsidiary of Eaton Vance
Management, and Eaton Vance Management is the Administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Shareholder and Fund Expenses ...................... 2 How to Redeem Fund Shares ...................... 18
The Fund's Financial Highlights .................... 3 Reports to Shareholders ........................ 19
The Fund's Investment Objective .................... 4 The Lifetime Investing Account/Distribution
How the Fund and the Portfolio Invest Options ...................................... 19
their Assets ..................................... 4 The Eaton Vance Exchange Privilege ............. 21
Organization of the Fund and the Portfolio ......... 10 Eaton Vance Shareholder Services ............. 21
Management of the Fund and the Portfolio ........... 12 Distributions and Taxes ........................ 22
Distribution Plan .................................. 13 Performance Information ........................ 23
Valuing Fund Shares ................................ 16 Appendix ....................................... 25
How to Buy Fund Shares ............................. 17
</TABLE>
- ------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1995
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES<F1>
- ------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemption During the First Year (as a percentage of
redemption proceeds exclusive of all reinvestments and capital appreciation in the account)<F4> 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
Investment Adviser Fee<F2> 0.44%
Rule 12b-1 Distribution (and Service) Fees 1.00
Other Expenses (after fee reduction)<F3> 0.16
----
Total Operating Expenses 1.60%
====
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
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 time period: $26 $50 $87 $190
An investor would pay the following expenses on the same investment,
assuming (a) 5% return and (b) no redemptions: $16 $50 $87 $190
Notes:
<FN>
<F1>The purpose of the above table and Example is to summarize the aggregate expenses of the Fund and the Portfolio and to assist
investors in understanding the various costs and expenses that investors in the Fund will bear directly or indirectly. The
Trustees of the Trust believe that over time the aggregate per share expenses of the Fund and the Portfolio should be
approximately equal to the per share expenses which the Fund would incur if the Trust retained the services of an investment
adviser and the assets of the Fund were invested directly in the type of securities being held by the Portfolio. The
percentages indicated as Annual Fund and Allocated Portfolio Operating Expenses and the amounts included in the Example are
based on the Fund's and the Portfolio's fees and expenses for the fiscal year ended September 30, 1994. The table and Example
should not be considered a representation of past or future expenses and actual expenses may be greater or less than those
shown. For further information regarding the expenses of the Fund and the Portfolio see "The Fund's Financial Highlights",
"Organization of the Fund and the Portfolio", "Management of the Fund and the Portfolio" and "How to Redeem Fund Shares".
Because the Fund makes payments under its Distribution Plan adopted under Rule 12b-1, a long-term shareholder may pay more
than the economic equivalent of the maximum front-end sales charge permitted by a rule of the National Association of
Securities Dealers, Inc. See "Distribution Plan." Other investment companies with different distribution arrangements and fees
are investing in the Portfolio and additional such companies may do so in the future. See "Organization of the Fund and the
Portfolio."
<F2>The 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.
<F3>Absent an expense allocation, "Other Expenses" would have been 0.42% of the Fund's average daily net assets.
<F4>The contingent deferred sales charge will be imposed on the redemption of shares purchased on or after January 30, 1995. No
contingent deferred sales charge is imposed on (a) shares purchased more than one year prior to redemption, (b) shares
acquired through the reinvestment of dividends and distributions or (c) any appreciation in value of other shares in the
account (see "How to Redeem Fund Shares"), and no such charge is imposed on exchanges of Fund shares for shares of one or more
other funds listed under "The Eaton Vance Exchange Privilege."
</TABLE>
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which
have been so included in reliance upon the report of Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and auditing.
Further information regarding the performance of the Fund is contained in the
Fund's annual report to shareholders which may be obtained without charge by
contacting the Principal Underwriter, Eaton Vance Distributors, Inc.
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FOR THE PERIOD FROM THE START OF BUSINESS, DECEMBER 3, 1993, TO
SEPTEMBER 30, 1994
NET ASSET VALUE, beginning of period........................... $10.000
-------
INCOME FROM OPERATIONS:
Net investment income........................................ $ 0.425
Net realized and unrealized gain on investments.............. (0.961)
-------
Total income from operations............................... $(0.536)
-------
LESS DISTRIBUTIONS:
From net investment income................................... $(0.425)
In excess of net investment income........................... (0.059)
-------
Total distributions........................................ $(0.484)
-------
NET ASSET VALUE, end of period................................. $ 8.980
=======
TOTAL RETURN(1)................................................ (5.60)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted)..................... $33,982
Ratio of net expenses to average daily net assets(2)........ 1.60%+
Ratio of net investment income to average daily net assets.. 5.39%+
*For the period from the start of business, December 3, 1993, to September 30,
1994, the operating expenses of the Fund reflect a reduction of expenses by
the Administrator. Had such actions not been taken, net investment income per
share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE................................ $ 0.405
=======
RATIOS (As a percentage of average daily net assets):
Expenses(3)................................................. 1.86%+
Net investment income....................................... 5.13%+
+ Computed on an annualized basis.
(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.
(2) Includes the Fund's share of its National Municipals Portfolio's allocated
expenses for the period from December 3, 1993 to September 30, 1994.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
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THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM THE
REGULAR FEDERAL INCOME TAX. The Fund seeks to meet its investment objective by
investing its assets in the National Municipals Portfolio (the "Portfolio"), a
separate registered investment company which invests primarily in municipal
obligations (described below) which are rated at least investment grade by a
major rating agency or, if unrated, determined to be of at least investment
quality by the Investment Adviser.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
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THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS ASSETS DURING PERIODS OF NORMAL MARKET CONDITIONS) IN
DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES AND POSSESSIONS
OF THE UNITED STATES, AND THE DISTRICT OF COLUMBIA AND THEIR POLITICAL
SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, THE INTEREST ON WHICH IS EXEMPT
FROM THE REGULAR FEDERAL INCOME TAX. The foregoing policy is a fundamental
policy of both the Fund and the Portfolio, which may not be changed unless
authorized by a vote of the shareholders of the Fund or the investors in the
Portfolio, as the case may be.
At least 65% of the net assets of the Portfolio will normally be invested in
municipal obligations rated at least investment grade at the time of investment
(which are those rated Baa or higher by Moody's Investors Service, Inc.
("Moody's") or BBB or higher by either Standard & Poor's Ratings Group ("S&P")
or by Fitch Investors Service, Inc. ("Fitch")), or, if unrated, determined by
the Investment Adviser to be of at least investment grade quality. 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. The Portfolio will invest less than 35% of its net
assets 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. Securities rated below BBB or
Baa are commonly known as "junk bonds". The Portfolio may retain an obligation
whose rating drops below B after its acquisition if such retention is considered
desirable by the Portfolio's Investment Adviser. See "Credit Quality -- Risks".
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. Public purpose municipal bonds include general obligation and revenue
bonds. General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility.
Municipal notes include bond anticipation, tax anticipation, revenue
anticipation and construction loan notes. Bond, tax and revenue anticipation
notes are short-term obligations that will be retired with the proceeds of an
anticipated bond issue, tax revenue or facility revenue, respectively.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from the regular Federal income tax applicable to individuals (and
corporations), but such interest (including a distribution by the Fund derived
from such interest) is treated as a tax preference item which could subject the
recipient to or increase his liability for the Federal alternative minimum tax;
as at September 30, 1994, the Portfolio had 30.45% of its net assets invested in
such private activity bonds. For corporate shareholders, the Fund's
distributions derived from interest on all municipal obligations (whenever
issued) are included in "adjusted current earnings" for purposes of the Federal
alternative minimum tax applicable to corporations ( to the extent not already
included in alternative minimum taxable income attributable to private activity
bonds).
The Omnibus Budget Reconciliation Act of 1993 changed the federal income
tax treatment of market discount on long-term tax-exempt municipal obligations
(i.e., obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 from taxable capital gain to taxable ordinary
income. A long-term debt obligation is generally treated as acquired at a market
discount if the secondary market purchase price is less than (i) the stated
principal amount payable at maturity, in the case of an obligation that does not
have original issue discount or (ii) in the case of an obligation that does have
original issue discount, the sum of the issue price and any original issue
discount that accrued before the obligation was purchased. The Portfolio may
acquire municipal obligations at a market discount from time to time, and the
Fund's distributions will (when so required) include taxable income reflecting
the realization of such accrued discount by the Portfolio and its allocation to
the Fund.
MATURITY. It is expected that the Portfolio will normally contain substantial
amounts of long-term municipal obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since the Portfolio's objective is to provide current income, the
Portfolio will invest in municipal obligations with an emphasis on income and
not on stability of the Portfolio's net asset value. The average maturity of the
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although the Portfolio will normally attempt to invest substantially all of
its assets in municipal obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its assets in short-term obligations the
interest on which is subject to regular Federal income tax. Such short-term
taxable obligations may include, but are not limited to, certificates of
deposit, commercial paper, short-term notes and obligations issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities. During
periods of adverse market conditions, the Portfolio may temporarily invest more
than 20% of its assets in such short-term taxable obligations, which will be
rated no lower than investment grade.
DIVERSIFIED STATUS. The Portfolio is a "diversified" investment company under
the Investment Company Act of 1940. This means that with respect to 75% of its
total assets (1) the Portfolio may not invest more than 5% of its total assets
in the securities of any one issuer (except U.S. Government obligations) and (2)
the Portfolio may not own more than 10% of the outstanding voting securities of
any one issuer. Since municipal obligations are not voting securities, there is
no limit on the percentage of a single issuer's obligations which the Portfolio
may own so long as it does not invest more than 5% of its total assets in the
securities of that issuer. Consequently, the Portfolio may invest in a greater
percentage of the outstanding securities of a single issuer than would an
investment company which invests in voting securities. There is no
diversification requirement with respect to the remaining 25% of the Portfolio's
total assets, so that all of such assets may be invested in the securities of
any one issuer. To the extent that the Portfolio is less diversified than that
of other investment companies, it may be subject to an increased risk of loss if
the issuer is unable to make interest or principal payments or if the market
value of such securities declines.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in municipal
obligations of issuers located in the same state or in municipal obligations of
the same type, including without limitation the following: general obligations
of states and localities; lease rental obligations of state and local
authorities; obligations of state and local housing finance authorities,
municipal utilities systems or public housing authorities; obligations for
hospitals or life care facilities; or industrial development or pollution
control bonds issued for electric utility systems, steel companies, paper
companies or other purposes. This may make the Portfolio more susceptible to
adverse economic, political, or regulatory occurrences affecting a particular
category of issuers. For example, health-care related issuers are susceptible to
medicaid reimbursement policies, and national and state health-care legislation.
As the Portfolio's concentration in the securities of a particular category of
issuer increases, so does the potential for fluctuation in the value of the
Fund's shares.
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THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF THE FUND AND THE PORTFOLIO ARE NOT FUNDAMENTAL
POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE
PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF THE FUND'S SHAREHOLDERS OR THE
INVESTORS IN THE PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES WERE MADE IN
THE FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT OBJECTIVES
DIFFERENT FROM THE OBJECTIVES WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE
TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
- ------------------------------------------------------------------------------
MUNICIPAL LEASES. The Portfolio may invest in municipal leases and
participations therein which frequently involve special risks. Municipal leases
are obligations in the form of a lease or installment purchase arrangement which
is entered into by a state or local government to acquire equipment and
facilities. Interest income from such obligations is generally exempt from local
and state taxes in the state of issuance. "Participations" in such leases are
undivided interests in a portion of the total obligation. Participations entitle
their holders to receive a pro rata share of all payments under the lease. A
trustee is usually responsible for administering the terms of the participation
and enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable 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. The Portfolio may invest in zero coupon bonds, which are debt
obligations which do not require the periodic payment of interest and are issued
at a significant discount from their face value. Such bonds experience greater
volatility in market value due to changes in interest rates than debt
obligations which provide for regular payments of interest. The Portfolio will
accrue income on such bonds for tax and accounting purposes in accordance with
applicable law, the Fund's proportionate share of which income is distributable
to shareholders. Because no cash is received at the time such income is accrued,
the Portfolio may be required to liquidate other portfolio securities to
generate cash that the Fund may withdraw from the Portfolio to enable the Fund
to satisfy its distribution obligations.
INVERSE FLOATERS. The Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may alter this
tendency, however. Although volatile, inverse floaters typically offer the
potential for yields exceeding the yields available on fixed rate bonds with
comparable credit quality and maturity. These securities usually permit the
investor to convert the floating rate to a fixed rate (normally adjusted
downward), and this optional conversion feature may provide a partial hedge
against rising rates if exercised at an opportune time. Inverse floaters are
leveraged because they provide two or more dollars of bond market exposure for
every dollar invested.
CREDIT QUALITY -- RISKS. Many municipal obligations offering current income are
in the lowest investment grade category (Baa or BBB), lower categories or may be
unrated. As indicated above, the Portfolio may invest in municipal obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which the Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations may
have some quality and protective characteristics, these characteristics can be
expected to be offset or outweighed by uncertainties or major risk exposures to
adverse conditions. Lower rated and comparable unrated municipal obligations are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated municipal obligations are also more likely to
react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Portfolio may retain defaulted obligations
in its portfolio when such retention is considered desirable by the Investment
Adviser. In the case of a defaulted obligation, the Portfolio may incur
additional expense seeking recovery of its investment. Municipal obligations
held by the Portfolio which are rated below investment grade but which,
subsequent to the assignment of such rating, are backed by escrow accounts
containing U.S. Government obligations may be determined by the Investment
Adviser to be of investment grade quality for purposes of the Portfolio's
investment policies. The Portfolio's holdings of obligations rated below
investment grade generally will be less than 35% of its net assets. In the event
the rating of an obligation held by the Portfolio is downgraded, causing the
Portfolio to exceed this limitation, the Investment Adviser will (in an orderly
fashion within a reasonable period of time) dispose of such obligations as it
deems necessary in order to comply with the foregoing limitation. For a
description of the Moody's, S&P and Fitch ratings, see the Statement of
Additional Information.
INSURED OBLIGATIONS. The Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of the Fund's shares.
MARKET CONDITIONS. The management of the Portfolio believes that, in general,
the secondary market for some municipal obligations, (including issues which are
privately placed with the Portfolio), is less liquid than that for taxable debt
obligations or for large issues of municipal obligations that trade in a
national market. No established resale market exists for certain of the
municipal obligations in which the Portfolio may invest. The market for
obligations rated below investment grade is also likely to be less liquid than
the market for higher rated obligations. These considerations may restrict the
availability of such obligations, may affect the choice of securities sold to
meet redemption requests and may have the effect of limiting the Portfolio's
ability to sell or dispose of such securities. Also, valuation of such
obligations may be more difficult.
NET ASSET VALUE FLUCTUATION. The net asset value of the Fund will change in
response to fluctuations in prevailing interest rates and changes in the value
of the securities held by the Portfolio. When interest rates decline, the value
of securities already held by the Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of existing portfolio security holdings can
be expected to decline. Therefore, an investment in shares of the Fund will not
constitute a complete investment program.
SHORT-TERM TRADING. The Portfolio may sell securities in anticipation of a
market decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what the Portfolio believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the overall
demand for or supply of various types of municipal obligations or changes in the
investment objectives of investors. Such trading may be expected to increase the
portfolio turnover rate and the expenses incurred in connection with such
trading. The Portfolio anticipates that its annual portfolio turnover rate will
generally not exceed 100% (excluding turnover of securities having a maturity of
one year or less).
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than the Portfolio agreed to pay for them. The Portfolio will not
accrue income in respect of a when-issued security prior to its stated delivery
date. The Portfolio will maintain in a segregated account sufficient assets to
cover its outstanding purchase obligations.
SECURITIES LENDING. The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets.
FUTURES AND OPTIONS TRANSACTIONS. To hedge against changes in interest rates,
the Portfolio may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on any of such futures contracts. The
Portfolio may also enter into closing purchase and sale transactions with
respect to such contracts and options. The futures contracts may be based on
various debt securities (such as U.S. Government securities), securities indices
and other financial instruments and indices. The Portfolio will engage in
futures and related options transactions for bona fide hedging or non- hedging
purposes as defined in regulations of the Commodity Futures Trading Commission.
The Portfolio will engage in such transactions for non-hedging purposes only in
order to enhance total return by using a futures position as a lower cost
substitute for a securities position that the Portfolio is otherwise authorized
to enter into.
The Portfolio may not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no other percentage
limitations on the Portfolio's transactions on future contracts or options on
futures, except that at least 80% of the Portfolio's assets will be invested in
municipal obligations as described above. These transactions involve brokerage
costs, require margin deposits and, in the case of futures contracts and options
requiring the Portfolio to purchase securities, require the Portfolio to
segregate liquid high grade debt securities in an amount equal to the underlying
value of such contracts and options. In addition, while transactions in futures
contracts and options on futures may reduce certain risks, such transactions
themselves involve (1) liquidity risk that contractual positions cannot be
easily closed out in the event of market changes, (2) correlation risk that
changes in the value of hedging positions may not match the market fluctuations
intended to be hedged (especially given that the only futures contracts
currently available to hedge municipal obligations are futures on various U.S.
Government securities and on municipal securities indices), (3) market risk that
an incorrect prediction by the Investment Adviser of interest rates may cause
the Portfolio to perform less well than if such positions had not been entered
into, and (4) skills different from those needed to select portfolio securities.
Distributions by the Fund from any net income or gains realized on the
Portfolio's transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
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THE FUND IS A 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, the
shares are fully paid and nonassessable by the Trust and redeemable as described
under "How to Redeem Fund Shares". Shareholders are entitled to one vote for
each full share held. Fractional shares may be voted proportionately. Shares
have no preemptive or conversion rights and are freely transferable. Upon
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND IS TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The Portfolio, as
well as the Trust, intends to comply with all applicable Federal and state
securities laws. The Portfolio's Declaration of Trust provides that the Fund and
other entities investing in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance exists and the Portfolio itself is unable to meet its
obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund
investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio,
which is a separate investment company with an identical investment objective.
Therefore, the Fund's interest in securities owned by the Portfolio is indirect.
In addition to selling an interest to the Fund, the Portfolio may sell interests
to other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions of the Portfolio, see "The
Fund's Investment Objective" and "How the Fund and the Portfolio Invest their
Assets". Further information regarding investment practices may be found in the
Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio. Any such change
of the investment objective of the Fund or the Portfolio will be preceded by
thirty days advance written notice to the shareholders of the Fund or the
investors in the Portfolio, as the case may be. If a shareholder redeems shares
because of a change in the nonfundamental objective or policies of the Fund,
those shares may be subject to a contingent deferred sales charge, as described
in "How to Redeem Fund Shares". In the event the Fund withdraws all of its
assets from the Portfolio, or the Board of Trustees of the Trust determines that
the investment objective of the Portfolio is no longer consistent with the
investment objective of the Fund, the Board of Trustees of the Trust would
consider what action might be taken, including investing all the assets of the
Fund in another pooled investment entity or retaining an investment adviser to
manage the Fund's assets in accordance with its investment objective. The Fund's
investment performance may be affected by a withdrawal of all its assets from
the Portfolio.
Information regarding other pooled investment entities or funds which invest
in the Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110
(617) 482-8260. Smaller funds investing in the Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio, the remaining funds may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take actions to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate boards may
be considered. For further information concerning the Tustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
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THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
<S> <C> <C> <C>
1 up to $500 million .................................... 0.300% 3.00%
2 $500 million but less than $1 billion ................. 0.275% 2.75%
3 $1 billion but less than $1.5 billion ................. 0.250% 2.50%
4 $1.5 billion but less than $2 billion ................. 0.225% 2.25%
5 $2 billion but less than $3 billion ................... 0.200% 2.00%
6 $3 billion and over ................................... 0.175% 1.75%
</TABLE>
As at September 30, 1994, the Portfolio had net assets of $2,210,936,286.
For the fiscal year ended September 30, 1994, the Portfolio paid BMR advisory
fees equivalent to 0.44% (annualized) of the Portfolio's average daily net
assets for such period.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio. The Portfolio is responsible for the payment of
all expenses other than those expressly stated to be payable by BMR under the
investment advisory agreement.
Thomas M. Metzold has acted as the portfolio manager of the Portfolio since
December 17, 1993. He has been a Vice President of Eaton Vance since 1991 and of
BMR since its inception, and an employee of Eaton Vance since 1987.
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 Portfolio and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company. Eaton Vance Corp. through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
DISTRIBUTION PLAN
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THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as the Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the Fund are made pursuant to a written plan
adopted in accordance with the Rule. The Plan is also subject to and complies
with the sales charge rule of the National Association of Securities Dealers,
Inc. (the "NASD Rule"). The Plan is described in the Statement of Additional
Information, and the following is a brief description of the salient features of
the Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay
sales commissions and distribution fees to the Principal Underwriter only after
and as a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of dividends and distributions) the Fund will pay the
Principal Underwriter amounts representing (i) sales commissions equal to 6.25%
of the amount received by the Fund for each share sold and (ii) distribution
fees calculated by applying the rate of 1% over the prime rate then reported in
The Wall Street Journal to the outstanding balance of Uncovered Distribution
Charges (as described below) of the Principal Underwriter. On sales made prior
to January 30, 1995, the Principal Underwirter currently pays monthly sales
commissions to a financial service firm (an "Authorized Firm") in amounts
anticipated to be equivalent to .75%, annualized, of the assets maintained in
the Fund by the customers of such Firm. On sales of shares made on January 30,
1995 and thereafter, the Principal Underwriter currently expects to pay an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .75% of the purchase price of the
shares sold by such Firm, and (b) monthly sales commissions approximately
equivalent to 1/12 of .75% of the value of shares sold by such Firm and
remaining outstanding for at least one year. The Plan is designed to permit an
investor to purchase Fund shares through an Authorized Firm without incurring an
initial sales charge and at the same time permit the Principal Underwriter to
compensate Authorized Firms in connection with the sale of Fund shares.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Accordingly, the Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. The Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under the Plan less all contingent
deferred sales charge theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts of all payments made to the Principal
Underwriter pursuant to the Plan, including any contingent deferred sales
charges, have exceeded the total expenses theretofore incurred by such
organization in distributing shares of the Fund. Total expenses for this purpose
will include an allocable portion of the overhead costs of such organization and
its branch offices.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan with respect to each day will be accrued on such day as a liability of the
Fund and will accordingly reduce the Fund's net assets upon such accrual, all in
accordance with generally accepted accounting principles. The amount payable on
each day is limited to 1/365 of .75% of the Fund's net assets on such day. The
level of the Fund's net assets changes each day and depends upon the amount of
sales and redemptions of Fund shares, the changes in the value of the
investments held by the Portfolio, the expenses of the Fund and the Portfolio
accrued and allocated to the Fund on such day, income on portfolio investments
of the Portfolio accrued and allocated to the Fund on such day, and any
dividends and distributions declared on Fund shares. The Fund does not accrue
possible future payments as a liability of the Fund or reduce the Fund's current
net assets in respect of unknown amounts which may become payable under the Plan
in the future because the standards for accrual of a liability under such
accounting principles have not been satisfied.
The provisions of the Plan relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Trust on behalf of the Fund and the Principal
Underwriter. The Plan 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 vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority
of the outstanding voting securities of the Fund.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charge will tend to reduce the time during which there will exist
Uncovered Distribution Charges of the Principal Underwriter.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of the Fund's
operations would cause a large portion of the sales commission attributable to a
sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For the period from the start of business,
December 3, 1993, to the fiscal year ended September 30, 1994, the Fund paid or
accrued sales commissions under its Plan equivalent to 0.75% (annualized) of the
Fund's average daily net assets. As at September 30, 1994 the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $2,901,000 (equivalent to 8.5% of the Fund's net
assets on such day).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees have initially implemented this provision of the Plan by authorizing
the Fund to make monthly service fee payments to the Principal Underwriter in
amounts not expected to exceed .25% of the Fund's average daily net assets for
any fiscal year. The Fund accrues the service fee daily at the rate of 1/365 of
.25% of the Fund's net assets. The Principal Underwriter will make monthly
service fee payments to Authorized Firms in amounts anticipated to be equivalent
to .25%, annualized, of the assets maintained in the Fund by their customers. On
sales made prior to January 30, 1995, the Principal Underwriter currently makes
monthly service fee payments to an Authorized Firm in amounts anticipated to be
equivalent to .20%, annualized, of the assets maintained in the Fund by the
customers of such Firm. On sales of shares made on January 30, 1995 and
thereafter, the Principal Underwriter currently expects to pay an Authorized
Firm (a) a service fee (except on exchange transactions and reinvestments) at
the time of sale equal to .25% of the purchase price of the shares sold by such
Firm, and (b) monthly service fees approximately equivalent to 1/12 of .25% of
the value of shares sold by such Firm and remaining outstanding for at least one
year. As permitted by the NASD Rule, all service fee payments 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 the Fund to the Principal Underwriter, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of the Principal Underwriter. During the first year after a purchase of
Fund shares, the Principal Underwriter will retain the service fee as
reimbursement for the service fee payment made to the Authorized Firm at the
time of sale. For the period from the start of business, December 3, 1993, to
the fiscal year ended September 30, 1994, the Fund paid or accrued service fees
under the Plan equivalent to 0.25% (annualized) of the Fund's average daily net
assets for such period.
The Plan as currently implemented by the Trustees authorizes payments of
sales commissions, distribution fees and service fees to the Principal
Underwriter which may be equivalent, on an aggregate basis during any fiscal
year of the Fund, to 1% of the Fund's average daily net assets for such year.
The Fund believes that the combined rate of all these payments may be higher
than the rate of payments made under distribution plans adopted by other
investment companies pursuant to Rule 12b-1. Although the Principal Underwriter
will use its own funds (which may be borrowed from banks) to pay sales
commissions and service fees at the time of sale, it is anticipated that the
Eaton Vance organization will profit by reason of the operation of the Plan
through increases in the Fund's assets (thereby increasing the advisory fees
payable to BMR by the Portfolio) resulting from sale of Fund shares and through
amounts paid under the Plan to the Principal Underwriter and contingent deferred
sales charges paid to the Principal Underwriter.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests substantially all of its assets in an interest in the Portfolio, the
Fund's net asset value will reflect the value of its interest in the Portfolio
(which, in turn, reflects the underlying value of the Portfolio's assets and
liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per share and the public offering price based
thereon. It is the Authorized Firms' responsibility to transmit orders promptly
to the Principal Underwriter, which is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio) based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Municipal obligations will normally be valued on the
basis of valuations furnished by a pricing service. For further information
regarding the valuation of the Portfolio's assets, see "Determination of Net
Asset Value" in the Statement of Additional Information. Eaton Vance owns 77.3%
of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
- ------------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE.
- ------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's Transfer Agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Draft Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities or securities and cash accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT or as soon thereafter as possible. The number of Fund
shares to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities, divided by the applicable net asset value per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the current market price for such securities but
does not guarantee the best price available. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Classic National Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic National Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult his
or her tax adviser with respect to the particular Federal, state and local tax
consequences of exchanging securities for Fund shares.
- ------------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
- ------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents must be endorsed by the record owner (s)
exactly as the shares are registered and the signature(s) must be guaranteed by
a member of either the Securities Transfer Association's STAMP program or the
New York Stock Exchange's Medallion Signature Program, or certain banks, savings
and loan institutions, credit unions, securities dealers, securities exchanges,
clearing agencies and registered securities associations as required by a
regulation of the Securities and Exchange Commission and acceptable to The
Shareholder Services Group, Inc. In addition, in some cases, good order may
require the furnishing of additional documents such as where shares are
registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by The
Shareholder Services Group, Inc., the Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any applicable contingent deferred sales charges described below and Federal
income tax required to be withheld. Although the Fund normally expects to make
payment in cash for redeemed shares, the Trust, subject to compliance with
applicable regulations, has reserved the right to pay the redemption price of
shares of the Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by the Fund from the Portfolio. The
securities so distributed would be valued pursuant to the Portfolio's valuation
procedures. If a shareholder received a distribution in kind, the shareholder
could incur brokerage or other charges in converting the securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption or repurchase may be delayed up to 15 days from the
purchase date when the purchase check has not yet cleared. Redemptions or
repurchases may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem Fund accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by the Fund if the cause of the
low account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to 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. This contingent deferred sales charge is
imposed on any redemption the amount of which exceeds the aggregate value at the
time of redemption of (a) all shares in the account purchased more than one year
prior to the redemption, (b) all shares in the account acquired through
reinvestment of distributions, and (c) the increase, if any, of value in the
other shares in the account (namely those purchased within the year preceding
the redemption) over the purchase price of such shares. Redemptions are
processed in a manner to maximize the amount of redemption proceeds which will
not be subject to a contingent deferred sales charge; i.e., each redemption will
be assumed to have been made first from the exempt amounts referred to in
clauses (a), (b) and (c) above, and second through liquidation of those shares
in the account referred to in clause (c) on a first-in-first- out basis. Any
contingent deferred sales charge which is required to be imposed on share
redemptions will be equal to 1% of the net asset value of redeemed shares.
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed under
"The Eaton Vance Exchange Privilege," the purchase of Fund shares acquired in
the exchange is deemed to have occurred at the time of the original purchase of
exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance, its affiliates, to their respective employees or
clients. The contingent deferred sales charge will also be waived for shares
redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance Shareholder
Services"), (2) as part of a distribution from a retirement plan qualified under
Section 401, 403(b) or 457 of the Internal Revenue Code, or (3) as part of a
minimum required distribution from other tax-sheltered retirement plans. The
contingent deferred sales charge will be paid to the Principal Underwriter or
the Fund. When paid to the Principal Underwriter it will reduce the amount of
Uncovered Distribution Charges calculated under the Fund's Distribution Plan.
See "Distribution Plan."
REPORTS TO SHAREHOLDERS
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THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish all shareholders with
information necessary for preparing Federal 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 FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. The Fund will not issue share certificates
except upon request.
At least quarterly, the shareholder will receive a statement showing
complete details of any transaction and the current share balance in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to The Shareholder
Services Group, Inc.
Any questions concerning a shareholder's account or services available may
also be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-
6265, extension 2, or in writing to The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104 (please provide the name of the
shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account at the then current net asset value. Furthermore,
the distribution option on the account will be automatically changed to the
Share Option until such time as the shareholder selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its transfer agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
- ------------------------------------------------------------------------------
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE.
- ------------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Classic Group of Funds which are distributed with a
contingent deferred sales charge and, when publicly available Eaton Vance Money
Market Fund (availability expected on or about April 3, 1995) on the basis of
the net asset value per share of each fund at the time of the exchange, provided
that such offer is available only in states where shares of such fund may be
legally sold.
Each exchange must involve shares which have a net asset value of $1,000.
The exchange privilege may be changed or discounted without penalty.
Shareholders will be given sixty (60) days notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the other funds are available from Authorized Firms or the
Principal Underwriter. The prospectus for each fund describes its investment
objectives and policies, and shareholders should obtain a prospectus and
consider these objectives and policies carefully before requesting an exchange.
Shares of the other funds in the Eaton Vance Classic Group of Funds and
Eaton Vance Money Market Fund (when available) may be exchanged for Fund shares
at their respective net asset values per share, but subject to any restrictions
or qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted provided by The Shareholder Services Group,
Inc., provided the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Fund, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone; provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
may be mailed directly to The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104 at any time -- whether or not dividends are reinvested.
The name of the shareholder, the Fund and the account number should accompany
each investment.
BANK DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder can 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 THE FUND,
provided that the reinvestment is effected within 30 days after such repurchase
or redemption. Shares are sold to a reinvesting shareholder at the next
determined net asset value following timely receipt of a written purchase order
by the Principal Underwriter or by the Fund (or by the Fund's Transfer Agent).
To the extent that any shares of the Fund are sold at a loss and the proceeds
are reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption) some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the twenty-second day of each month or the next
business day thereafter. The Fund anticipates that for tax purposes the entire
distribution, whether taken in cash or additional shares, will constitute
tax-exempt income to shareholders, except for the proportionate part of the
distribution that may be considered taxable income if the Fund has taxable
income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax cost
basis of the additional shares acquired by reason of such reinvestment. Daily
distribution crediting will commence on the day that collected funds for the
purchase of Fund shares are available at the Transfer Agent. Shareholders will
receive timely Federal income tax information as to the tax-exempt or taxable
status of all distributions made by the Fund during the calendar year. The
Fund's net realized capital gains, if any, consist of the net realized capital
gains allocated to the Fund by the Portfolio for tax purposes, after taking into
account any available capital loss carryovers; the Fund's net realized capital
gains, if any, will be distributed at least once a year, usually in December.
In order to qualify as a regulated investment company under the Internal
Revenue Code (the "Code"), the Fund must satisfy certain requirements relating
to the sources of its income, the distribution of its income, and the
diversification of its assets. In satisfying these requirements, the Fund will
treat itself as owning its proportionate share of each of the Portfolio's assets
and as entitled to the income of the Portfolio properly attributable to such
share.
- ------------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP
UNDER THE CODE, THE PORTFOLIO ALSO DOES NOT PAY FEDERAL INCOME OR EXCISE
TAXES.
- ------------------------------------------------------------------------------
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 5). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such, for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of the Fund.
Tax-exempt distributions received from the Fund are includable in the tax
base for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible. Further, entities or persons who
are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of the Fund. "Substantial
user " is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The current yield for the Fund will be calculated by dividing the net
investment income per share during a recent 30 day period by the maximum
offering price per share (net asset value) of the Fund on the last day of the
period and annualizing the resulting figure. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by 1 minus the tax
rate. The Fund's average annual total return is determined by 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 a complete
redemption of the investment and the deduction of any contingent deferred sales
charge at the end of the period. The Fund may publish annual and cumulative
total return figures from time to time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current maximum offering
price (net asset value) per share. The Fund's effective distribution rate is
computed by dividing the distribution rate by the ratio used to annualize the
most recent monthly distribution and reinvesting the resulting amount for a full
year on the basis of such ratio. The effective distribution rate will be higher
than the distribution rate because of the compounding effect of the assumed
reinvestment. Investors should note that the Fund's yield is calculated using a
standardized formula, the income component of which is computed from the yields
to maturity of all debt obligations held by the Portfolio based on prescribed
methods (with all purchases and sales of securities during such period included
in the income calculation on a settlement date basis), whereas the distribution
rate is based on the Fund's last monthly distribution which tends to be
relatively stable and may be more or less than the amount of net investment
income and short-term capital gain actually earned by the Fund during the month.
Performance figures published by a Fund which do not include the effect of
any applicable contingent deferred sales charge would be reduced if it were
included.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield or total return for
any prior period should not be considered a representation of what an investment
may earn or what an investor's yield or total return may be in any future
period. If the expenses of the Fund or the Portfolio are paid by Eaton Vance,
the Fund's performance will be higher.
<PAGE>
APPENDIX
NATIONAL MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
MUNICIPAL BONDS MUNICIPAL BONDS
MOODY'S RATING S&P'S RATING
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
---------- ----------
<S> <C> <C> <C>
Aaa .................................... 17.10 AAA ................................ 17.18
Aa ..................................... 5.08 AA+ ................................ 0.13
Aa2 .................................... 3.29 AA ................................. 6.09
A1 ..................................... 4.53 AA- ................................ 4.63
A ...................................... 2.64 A+ ................................. 2.41
A2 ..................................... 0.97 A .................................. 2.59
Baa1 ................................... 7.92 A- ................................. 2.23
Baa .................................... 7.00 BBB+ ............................... 3.74
Baa2 ................................... 3.88 BBB ................................ 8.06
Baa3 ................................... 3.95 BBB- ............................... 3.00
Ba1 .................................... 4.48 BB+ ................................ 4.09
Ba ..................................... 0.20 BB ................................. 8.92
Ba3 .................................... 0.45 BB- ................................ 0.97
B2 ..................................... 0.55 B .................................. 0.45
B3 ..................................... 0.97 Unrated ............................ 33.14
Unrated ................................ 34.59 Cash & Equiv ....................... 2.40
Cash & Equiv ........................... 2.40 -----
----- 100.00%
100.00%
</TABLE>
The chart above indicates the weighted average composition of the securities
held by the Portfolio for the period ended September 30, 1994, with the debt
securities rated by Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group separated into the indicated categories. The weighted average
indicated above was calculated on a dollar weighted basis and was computed as at
the end of each month during the fiscal year. The chart does not necessarily
indicate what the composition of the securities held by the Portfolio's will be
in the current and subsequent fiscal years.
For a description of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group ratings of municipal bonds, see the Appendix to the Statement of
Additional Information.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
NATIONAL MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-HMP
[Logo]
EV Classic
National Municipals
Fund
PROSPECTUS
FEBRUARY 1, 1995
<PAGE>
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1995
The Trustees of the Fund and the Portfolio have amended the
nonfundamental investment policy governing call options to read "neither the
Fund nor the Portfolio may engage in options, futures or forward transactions if
more than 5% of its net assets, as measured by the aggregate of the premiums
paid by the Fund or the Portfolio, would be so invested". THE FOLLOWING
DISCLOSURE IS ADDED TO THE SECTION "WHEN-ISSUED SECURITIES":
The Portfolio may also purchase instruments that give the
Portfolio the option to purchase a municipal obligation when and if
issued.
May 5, 1995 MMBPS
<PAGE>
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO (THE "FUND") IS A NO-LOAD MUTUAL
FUND SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX
AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. THE FUND INVESTS ITS ASSETS IN
MASSACHUSETTS TAX FREE PORTFOLIO (THE "PORTFOLIO"), A NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN
BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH
HISTORICALLY STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES OF EATON VANCE
MUNICIPALS TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
Statement of Additional Information for the Fund dated February 1, 1995, as
supplemented from time to time, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's Principal Underwriter,
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110 (telephone
(800) 225-6265). The Portfolio's investment adviser is Boston Management and
Research (the "Investment Adviser"), a wholly-owned subsidiary of Eaton Vance
Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
Shareholder and Fund Expenses................................................ 2
The Fund's Financial Highlights.............................................. 3
The Fund's Investment Objective.............................................. 4
How the Fund and the Portfolio Invest their
Assets.................................................................... 4
Organization of the Fund and the Portfolio.................................. 11
Management of the Fund and the Portfolio.................................... 13
Valuing Fund Shares......................................................... 15
How to Buy Fund Shares...................................................... 15
How to Redeem Fund Shares................................................... 17
Reports to Shareholders..................................................... 19
The Lifetime Investing Account/Distribution Options......................... 19
Eaton Vance Shareholder Services............................................ 20
Distributions and Taxes..................................................... 21
Performance Information..................................................... 23
- ------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES (1)
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee(2) 0.46%
Rule 12b-1 Distribution Expenses None
Other Expenses(3) 0.14%
Total Operating Expenses 0.60%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
An investor would pay the following $6 $19 $33 $75
expenses on a $1,000 investment,
assuming (a) 5% annual return and
(b) redemption at the end of each
period:
Notes:
(1)The purpose of the above table and Example is to summarize the aggregate
expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund will
bear directly or indirectly. The Trustees of the Trust believe that over time
the aggregate per share expenses of the Fund and the Portfolio should be
approximately equal to the per share expenses which the Fund would incur if
the Trust retained the services of an investment adviser and the assets of
the Fund were invested directly in the type of securities being held by the
Portfolio. The percentages indicated as Annual Fund and Allocated Portfolio
Operating Expenses and the amounts included in the Example are based on both
the Fund's and the Portfolio's results for the fiscal year ended September
30, 1994. The table and Example should not be considered a representation of
past or future expenses and actual expenses may be greater or less than those
shown. For further information regarding the expenses of both the Fund and
the Portfolio see "The Fund's Financial Highlights", "Organization of the
Fund and the Portfolio" and "Management of the Fund and the Portfolio". Other
investment companies with different distribution arrangements and fees are
investing in the Portfolio and additional such companies may do so in the
future. See "Organization of the Fund and the Portfolio".
(2)The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the
fee schedule on page 14.
(3)Absent an expense allocation to the Administrator, Other Expenses would have
been 0.66% of the Fund's average daily net assets.
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which has
been so included in reliance upon the report of Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and auditing.
Further information regarding the performance of the Fund is contained in the
Fund's annual report to shareholders which may be obtained without charge by
contacting the Fund's Principal Underwriter, Eaton Vance Distributors, Inc.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30
--------------------------
1994 1993*
------- -------
<S> <C> <C>
NET ASSET VALUE, beginning of year $10.260 $10.000
--------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.548 $ 0.141
Net realized and unrealized gain (loss) on investments (1.026) 0.284
--------- --------
Total income (loss) from operations ($ 0.478) $ 0.425
--------- --------
LESS DISTRIBUTIONS:
From net investment income ($ 0.548) ($0.141)
In excess of net realized gain on investments ($0.010) ---
In excess of net investment income (0.004) (0.024)
------- --------
Total distributions ($ 0.562) ($0.165)
--------- --------
NET ASSET VALUE, end of year $ 9.220 $10.260
========= ========
TOTAL RETURN(2) (4.79%) 4.04%
RATIOS/SUPPLEMENTAL DATA(**)
Net assets, end of period (000 omitted) $ 9,338 $ 5,063
Ratio of net expenses to average daily net assets(1) 0.60% 1.21%+
Ratio of net investment income to average daily net assets 5.65% 4.80%+
** For the year ended September 30, 1994, the operating expenses of the Fund
reflect a reduction of expenses by the Administrator. Had such action not
been taken, net investment income per share and the ratios would have been
as follows:
NET INVESTMENT INCOME PER SHARE $0.498
=========
RATIOS (As a percentage of average net assets):
Expenses(1) 1.12%
Net investment income 5.13%
(1) Includes the Fund's share of Massachusetts Tax Free Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and
a sale at the net asset value on the last day of each period reported.
Dividends and distributions, if any, are assumed to be reinvested at the
net asset value on the payable date.
* For the period from the start of business, June 17, 1993, to September 30, 1993.
+ Computed on an annualized basis.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. The Fund seeks
to meet its investment objective by investing its assets in the Massachusetts
Tax Free Portfolio (the "Portfolio"), a separate registered investment company
which invests primarily in Massachusetts obligations (as described below) which
are rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Portfolio's
Investment Adviser.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF THE COMMONWEALTH OF
MASSACHUSETTS 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 MASSACHUSETTS STATE PERSONAL INCOME
TAXES ("MASSACHUSETTS TAX-EXEMPT OBLIGATIONS"). The foregoing policy is a
fundamental policy of both the Fund and the Portfolio, which may not be changed
unless authorized by a vote of the shareholders of the Fund or the investors in
the Portfolio, as the case may be.
At least 70% of the Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or by Fitch
Investors Service, Inc. ("Fitch")) or, if unrated, determined by the Investment
Adviser to be of at least investment grade quality. Massachusetts obligations
rated Baa or BBB may have speculative characteristics. Also, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher rated
obligations. The Portfolio may invest up to 30% of its net assets in obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
unrated obligations considered to be of comparable quality by the Investment
Adviser. Securities rated below BBB or Baa are commonly known as "junk bonds".
The Portfolio may retain an obligation whose rating drops below B after its
acquisition if such retention is considered desirable by the Investment Adviser.
See "Credit Quality - Risks." For a description of municipal obligation ratings,
see the Statement of Additional Information.
MASSACHUSETTS OBLIGATIONS. Municipal obligations eligible for the exemption from
Massachusetts state income taxes ("Massachusetts obligations") include bonds,
notes and commercial paper issued by a municipality for a wide variety of both
public and private purposes. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility. Municipal notes include bond anticipation, tax
anticipation, revenue anticipation, and construction loan notes. Bond, tax and
revenue anticipation notes are short-term obligations that will be retired with
the proceeds of an anticipated bond issue, tax revenue or facility revenue,
respectively. Construction loan notes are short-term obligations that will be
retired with the proceeds of long-term mortgage financing. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in
obligations issued by the Commonwealth of Massachusetts or its political
subdivisions.
Interest on certain "private activity bonds" issued after August 7,
1986 is exempt from the regular Federal income tax applicable to individuals
(and corporations), but such interest (including a distribution by the Fund
derived from such interest) is treated as a tax preference item which could
subject the recipient to or increase his liability for the Federal alternative
minimum tax. The Portfolio may not invest more than 20% of its net assets in
these obligations and obligations subject to regular Federal income tax and/or
Massachusetts state personal income taxes. As at September 30, 1994, the
Portfolio had 11.2% of its net assets in such private activity bonds. For
corporate shareholders, the Fund's distributions derived from interest on all
Massachusetts obligations (whenever issued) is included in "adjusted current
earnings" for purposes of the Federal alternative minimum tax applicable to
corporations (to the extent not already included in alternative minimum taxable
income as income attributable to private activity bonds).
The Omnibus Budget Reconciliation Act of 1993 changed the Federal
income tax treatment of market discount on long-term tax-exempt municipal
obligations (i.e., obligations with a term of more than one year) purchased in
the secondary market after April 30, 1993 from taxable capital gain to taxable
ordinary income. A long-term debt obligation is generally treated as acquired at
a market discount if the secondary market purchase price is less than (i) the
stated principal amount payable at maturity, in the case of an obligation that
does not have original issue discount or (ii) in the case of an obligation that
does have original issue discount, the sum of the issue price and any original
issue discount that accrued before the obligation was purchased. The Portfolio
may acquire municipal obligations at a market discount from time to time, and
the Fund's distributions will (when so required) include taxable income
reflecting the realization of such accrued discount by the Portfolio and its
allocation to the Fund.
MATURITY. It is expected that the Portfolio will normally include substantial
amounts of long-term Massachusetts obligations with maturities of ten years or
more because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since the Portfolio's objective is to provide current income, the
Portfolio will invest in Massachusetts obligations with an emphasis on income
and not on stability of the Portfolio's net asset value. The average maturity of
the Portfolio's holdings may vary (generally between 15 and 30 years) depending
on anticipated market conditions.
Although the Portfolio will normally attempt to invest substantially
all of its assets in Massachusetts obligations, the Portfolio may, under normal
market conditions, invest up to 20% of its net assets in short-term obligations
the interest on which is subject to regular Federal income tax, Federal
alternative minimum tax and/or Massachusetts state personal income taxes. Such
short-term taxable obligations may include, but are not limited to, certificates
of deposit, commercial paper, short-term notes and obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
During periods of adverse market conditions, the Portfolio may temporarily
invest more than 20% of its assets in such short-term taxable obligations, which
will be rated no lower than investment grade.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in
Massachusetts obligations of the same type, including, without limitation, the
following: general obligations of the Commonwealth of Massachusetts and its
political subdivisions; lease rental obligations of state and local authorities;
obligations of state and local housing finance authorities, municipal utilities
systems or public housing authorities; obligations for hospitals or life care
facilities; or industrial development or pollution control bonds issued for
electric utility systems, steel companies, paper companies or other purposes.
This may make the Portfolio more susceptible to adverse economic, political, or
regulatory occurrences affecting a particular category of issuer. For example,
health care-related issuers are susceptible to medicaid reimbursement policies,
and national and state health care legislation. As the Portfolio's concentration
in the securities of a particular category of issuer increases, the potential
for fluctuation in the value of the Fund's shares also increases.
NON-DIVERSIFIED STATUS. The Portfolio's classification under the Investment
Company Act of 1940 as a "non-diversified" investment company allows it to
invest, with respect to 50% of its assets, more than 5% of its assets in the
securities of any issuer. Because of the small number of issues of Massachusetts
obligations, the Portfolio is likely to invest a greater percentage of its
assets in the securities of a single issuer than would a diversified fund.
Therefore, the Portfolio would be more susceptible to any single adverse
economic or political occurrence or development affecting Massachusetts issuers.
The Portfolio will also be subject to an increased risk of loss if the issuer is
unable to make interest or principal payments or if the market value of such
securities declines. It is also possible that sufficient suitable Massachusetts
tax-exempt obligations will not be available for the Portfolio to achieve its
investment objective.
CONCENTRATION IN MASSACHUSETTS OBLIGATIONS - RISKS. Because the Portfolio will
normally invest at least 65% of its assets in Massachusetts obligations, it is
susceptible to factors affecting Massachusetts. The Portfolio may also invest up
to 5% of its net assets in obligations issued by the governments of Guam and the
U.S. Virgin Islands and up to 35% of its assets in obligations issued by the
government of Puerto Rico. Set forth below is certain economic and tax
information concerning Massachusetts and Puerto Rico. The bond ratings provided
below are current as of the date of this Prospectus and are based on economic
conditions which may not continue; moreover, there can be no assurance that
particular bond issues may not be adversely affected by changes in economic,
political or other conditions. Unless stated otherwise, the ratings indicated
are for obligations of Massachusetts. Massachusetts political subdivisions may
have different ratings which are unrelated to the ratings assigned to
Massachusetts obligations.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-intensive
manufacturing industries to technology and service-based industries. The
unemployment rate was 6.4% as of October, 1994, while the national unemployment
rate was 5.8%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain debt
incurred to pay the fiscal 1990 deficit and certain Medicaid reimbursement
payments for prior years) was limited to 10%. In addition, the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, is limited. Property taxes are virtually
the only source of tax revenues available to cities and towns to meet local
costs. This limitation on cities and towns to generate revenues could create a
demand for increases in state-funded local aid. The recent difficulties
experienced by the Commonwealth have resulted in a substantial reduction in
local aid from the Commonwealth, which may create financial difficulties for
certain municipalities.
As of the date of this Prospectus, general obligations of the
Commonwealth of Massachusetts were rated A, A+ and A+ by Moody's, S&P and Fitch,
respectively.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for August, 1994 was approximately 14.5%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
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.
INVESTMENT RESTRICTIONS. The Fund and the Portfolio have adopted certain
fundamental investment restrictions which are enumerated in detail in the
Statement of Additional Information and which may not be changed unless
authorized by a shareholder vote and an investor vote, respectively. Except for
such enumerated restrictions and as otherwise indicated in this Prospectus, the
investment objective and policies of the Fund and the Portfolio are not
fundamental policies and accordingly may be changed by the Trustees of the Trust
and the Portfolio without obtaining the approval of the Fund's shareholders or
the investors in the Portfolio, as the case may be. If any changes were made in
the Fund's investment objective, the Fund might have investment objectives
different from the objectives which an investor considered appropriate at the
time the investor became a shareholder in the Fund.
MUNICIPAL LEASES. The Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is entered into by a state or local government to acquire
equipment and facilities. Interest income from such obligations is generally
exempt from local and state taxes in the state of issuance. "Participations" in
such leases are undivided interests in a portion of the total obligation.
Participations entitle their holders to receive a pro rata share of all payments
under the lease. A trustee is usually responsible for administering the terms of
the participation and enforcing the participants' rights in the underlying
lease. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The 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 may be deemed illiquid for purposes of
the Portfolio's 15% limitation on investing in illiquid securities, unless
determined by the Investment Adviser, pursuant to guidelines adopted by the
Trustees of the Portfolio, to be liquid securities for the purpose of such
limitation. In determining the liquidity of municipal lease obligations, the
Investment Adviser will consider a variety of factors including: (1) the
willingness of dealers to bid for the security; (2) the number of dealers
willing to purchase or sell the obligation and the number of other potential
buyers; (3) the frequency of trades and quotes for the obligation; and (4) the
nature of the marketplace trades. In addition, the Investment Adviser will
consider factors unique to particular lease obligations affecting the
marketability thereof. These include the general creditworthiness of the
municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an ongoing basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS. The Portfolio may invest in zero coupon bonds, which are debt
obligations that do not require the periodic payment of interest and are issued
at a significant discount from their face value. Such bonds experience greater
volatility in market value due to changes in interest rates than municipal
obligations that provide for regular payments of interest. The Portfolio will
accrue income on such bonds for tax and accounting purposes in accordance with
applicable law, the Fund's proportionate share of which income is distributable
to shareholders of the Fund. Because no cash is received at the time such income
is accrued, the Portfolio may be required to liquidate other portfolio
securities to generate cash that the Fund may withdraw from the Portfolio to
enable the Fund to satisfy its distribution obligations.
INVERSE FLOATERS. The Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may alter this
tendency, however. Although volatile, inverse floaters typically offer the
potential for yields exceeding the yields available on fixed rate bonds with
comparable credit quality and maturity. These securities usually permit the
investor to convert the floating rate to a fixed rate (normally adjusted
downward), and this optional conversion feature may provide a partial hedge
against rising interest rates if exercised at an opportune time. Inverse
floaters are leveraged because they provide two or more dollars of bond market
exposure for every dollar invested.
CREDIT QUALITY - RISKS. Many Massachusetts obligations offering current income
are in the lowest investment grade category (Baa or BBB), lower categories or
may be unrated. The Portfolio may invest up to 30% of its net assets in
Massachusetts obligations rated below investment grade (but not lower than B by
Moody's, S&P or Fitch) and comparable unrated obligations. The lowest investment
grade, lower rated and comparable unrated Massachusetts obligations in which the
Portfolio may invest will have speculative characteristics in varying degrees.
While such obligations may have some quality and protective characteristics,
these characteristics can be expected to be offset or outweighed by
uncertainties or major risk exposures to adverse conditions. Lower rated and
comparable unrated municipal obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations (credit
risk) and may also be subject to greater price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). Lower rated or unrated
municipal obligations are also more likely to react to real or perceived
developments affecting market and credit risk than are more highly rated
obligations, which react primarily to movements in the general level of interest
rates. The Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the Portfolio which
are rated below investment grade but which, subsequent to the assignment of such
rating, are backed by escrow accounts containing U.S. Government obligations may
be determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. The Portfolio's holdings of
obligations rated below investment grade generally will be less than 35% of its
net assets. In the event the rating of an obligation held by the Portfolio is
downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the foregoing
limitation. For a description of municipal obligation ratings, see the Statement
of Additional Information.
INSURED OBLIGATIONS. The Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of the Fund's shares.
MARKET CONDITIONS. The management of the Portfolio believes that, in general,
the secondary market for some Massachusetts obligations (including issues which
are privately placed with the Portfolio) is less liquid than that for taxable
debt obligations or for large issues of municipal obligations that trade in a
national market. No established resale market exists for certain of the
Massachusetts obligations in which the Portfolio may invest. The market for
obligations rated below investment grade is also likely to be less liquid than
the market for higher rated obligations. These considerations may restrict the
availability of such obligations, may affect the choice of securities sold to
meet redemption requests and may limit the ability of the Portfolio to sell or
dispose of such securities. Also, valuation of such obligations may be more
difficult.
NET ASSET VALUE FLUCTUATION. The net asset value of the Fund will change in
response to fluctuations in prevailing interest rates and changes in the value
of the securities held by the Portfolio. When interest rates decline, the value
of securities held by the Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of existing portfolio security holdings can be
expected to decline. Therefore, an investment in the Portfolio will not
constitute a complete investment program.
SHORT-TERM TRADING. The Portfolio may sell securities in anticipation of a
market decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what the Portfolio believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the overall
demand for or supply of various types of Massachusetts obligations or changes in
the investment objectives of investors. Such trading may be expected to increase
portfolio turnover rate and the expenses incurred in connection with such
trading. The Portfolio anticipates that its annual portfolio turnover rate will
generally not exceed 100% (excluding turnover of securities having a maturity of
one year or less).
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a "when-issued"
basis, which means that payment and delivery occur on a future settlement date.
The price and yield of such securities are generally fixed on the date of
commitment to purchase. However, the market value of the securities may
fluctuate prior to delivery and upon delivery the securities may be worth more
or less than the Portfolio agreed to pay for them. The Portfolio will not accrue
income in respect of when-issued securities prior to the stated delivery date of
such securities. The Portfolio will maintain in a segregated account sufficient
assets to cover its outstanding purchase obligations.
SECURITIES LENDING. The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets.
FUTURES AND OPTIONS TRANSACTIONS. To hedge against changes in interest rates,
the Portfolio may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on futures contracts. The Portfolio may
also enter into closing purchase and sale transactions with respect to such
contracts and options. The futures contracts may be based on various debt
securities (such as U.S. Government securities), securities indices and other
financial instruments and indices. The Portfolio will engage in futures and
related options transactions for bona fide hedging or non-hedging purposes as
defined in or permitted by regulations of the Commodity Futures Trading
Commission. The Portfolio will engage in such transactions for non-hedging
purposes only in order to enhance total return by using a futures position as a
lower cost substitute for a securities position that the Portfolio is otherwise
authorized to enter into.
The Portfolio may not purchase or sell futures contracts or purchase or
sell related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's outstanding positions in futures and related options and the amount
of premiums paid for outstanding positions in options on futures would exceed 5%
of the market value of the Portfolio's net assets. There are no other percentage
limitations on the Portfolio's transactions in futures contracts or options on
futures; except that at least 80% of the Portfolio's net assets will be invested
in Massachusetts tax-exempt obligations. These transactions involve brokerage
costs, require margin deposits and, in the case of futures contracts and options
requiring the Portfolio to purchase securities, require the Portfolio to
segregate liquid high grade debt securities in an amount equal to the underlying
value of such contracts and options. In addition, while transactions in futures
contracts and options on futures may reduce certain risks, such transactions
themselves involve (1) liquidity risk that contractual positions cannot be
easily closed out in the event of market changes, (2) correlation risk that
changes in the value of hedging positions may not match the market fluctuations
intended to be hedged (especially given that the only futures contracts
currently available to hedge Massachusetts obligations are futures on various
U.S. Government securities and on municipal securities indices), (3) market risk
that an incorrect prediction by the Investment Adviser of interest rates may
cause the Portfolio to perform less well than if such positions had not been
entered into, and (4) skills different from those needed to select portfolio
securities. Distributions by the Fund from any net income or gains realized on
the Portfolio's transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
THE FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST"), A BUSINESS
TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST
DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL FUND - AN OPEN-END
MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Fund has one class of
shares of beneficial interest, an unlimited number of which may be issued. Each
share represents an equal proportionate beneficial interest in the Fund. When
issued and outstanding, the shares are fully paid and nonassessable by the Fund
and redeemable as described under "How to Redeem Fund Shares." Shareholders are
entitled to one vote for each full share held. Fractional shares may be voted
proportionately. Shares have no preemptive or conversion rights and are freely
transferable. Upon liquidation of the Fund, shareholders are entitled to share
pro rate in the net assets of the Fund available for distribution to
shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND IS TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The Portfolio, as
well as the Trust, intends to comply with all applicable Federal and state
securities laws. The Portfolio's Declaration of Trust provides that the Fund and
other entities permitted to invest in the Portfolio (e.g., other U.S. and
foreign investment companies, and common and commingled trust funds) will each
be liable for all obligations of the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Trustees of the Trust
believe that neither the Fund nor its shareholders will be adversely affected by
reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio,
which is a separate investment company with an identical investment objective.
Therefore, the Fund's interest in the securities owned by the Portfolio is
indirect. In addition to selling an interest to the Fund, the Portfolio may sell
interests to other affiliated and non-affiliated mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to sell
their shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions of the Portfolio, see "The
Fund's Investment Objective" and "How the Fund and the Portfolio Invest their
Assets". Further information regarding investment practices may be found in the
Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as will as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio. Any such change
of the investment objective will be preceded by thirty days advance written
notice to the shareholders of the Fund or the investors in the Portfolio, as the
case may be. In the event the Fund withdraws all of its assets from the
Portfolio, or the Board of Trustees of the Trust determines that the investment
objective of the Portfolio is no longer consistent with the investment objective
of the Fund, such Trustees would consider what action might be taken, including
investing all the assets of the Fund in another pooled investment entity or
retaining an investment adviser to manage the Fund's assets in accordance with
its investment objective. The Fund's investment performance may be affected by a
withdrawal of all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110
(617) 482-8260. Smaller funds investing in the Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio, the remaining funds may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate boards may
be considered. For further information concerning the Trustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of:
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
ASSET INCOME
CATEGORY DAILY NET ASSETS RATE RATE
- -------- ---------------- ----- ------
<C> <C> <C> <C>
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
</TABLE>
As at September 30, 1994, the Portfolio had net assets of $308,539,780. For
the fiscal year ended September 30, 1994, the Portfolio paid BMR advisory fees
equivalent to 0.46% of the Portfolio's average daily net assets.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio. The Portfolio is responsible for the payment of
all expenses other than those expressly stated to be payable by BMR under the
investment advisory agreement.
Robert B. MacIntosh has acted as the portfolio manager of the 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).
Municipal obligations, including Massachusetts obligations, are normally
traded on a net basis (without commission) through broker-dealers and banks
acting for their own account. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price of
the market, and the difference is customarily referred to as the spread. In
selecting firms which will execute portfolio transactions, BMR judges their
professional ability and quality of service and uses its best efforts to obtain
execution at prices which are advantageous to the Portfolio and at reasonably
competitive spreads. Subject to the foregoing, BMR may consider sales of shares
of other investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as its
Administrator. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests substantially all of its assets in an interest in the Portfolio, the
Fund's net asset value will reflect the value of its interest in the Portfolio
(which, in turn, reflects the underlying value of the Portfolio's assets and
liabilities).
Orders must be received by the Principal Underwriter prior to the close of
the Principal Underwriter's business day to receive that day's net asset value
per Fund share.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio), based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Massachusetts obligations will normally be valued on
the basis of valuations furnished by a pricing service. For further information
regarding the valuation of the Portfolio's assets, see "Determination of Net
Asset Value" in the Statement of Additional Information. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
The Trustees of the Trust have determined that shares of the Fund shall only be
available to employees of Eaton Vance Corp. (and its affiliates, including
subsidiaries), clients of Eaton Vance Corp. (and its affiliates, including
subsidiaries) and certain institutional investors.
Investors may purchase shares of the Fund without a sales charge at the net
asset value per share of the Fund next determined after an order is effective as
described under "Other Purchase Procedures" below. An initial investment in the
Fund must be at least $1,000. Once an account has been established the investor
may send investment of $50 or more at any time. The $1,000 minimum initial
investment is waived for Bank Draft Investing accounts, which may be established
with an investment of $50 or more. See "Eaton Vance Shareholder Services". The
Fund may suspend the offering of shares at any time and may refuse an order for
the purchase of shares.
PURCHASES BY WIRE: Investors may purchase shares by requesting their bank to
transmit immediately available funds (Federal funds) by wire to: ABA #011001438,
Federal Reserve Bank of Boston, A/C Investors Bank & Trust Company, Further
Credit Massachusetts Municipal Bond Portfolio, A/C #[Insert your account number
- - see below].
Upon making an initial investment by wire, you must first telephone the
Order Department of the Fund (800-225-6265, extension 3) to advise of your
action and to be assigned an account number. If you neglect to make the
telephone call, it may not be possible to process your order promptly. In
addition, the Account Application form which accompanies this Prospectus should
be promptly forwarded to The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104.
Additional investments may be made at any time through the wire procedure
described above. The Fund Order Department must be immediately advised by
telephone (800-225-6265, extension 3) of each transmission of funds by wire.
Purchases received by wire by 4:00 P.M. on any business day are invested at
the net asset value determined at 4:00 P.M. the same day.
PURCHASES BY MAIL: For an initial purchase by mail, the Account Application form
which accompanies this Prospectus should be completed, signed and mailed with a
check, Federal Reserve Draft, or other negotiable bank draft, drawn on a U.S.
bank and payable in U.S. dollars, to the order of Massachusetts Municipal Bond
Portfolio to: The Shareholder Services Group, Inc., BOS725, P.O. Box 1559,
Boston, MA 02104.
Additional purchases may be made at any time by mailing a check, Federal
Reserve Draft, or other negotiable bank draft, drawn on a U.S. bank and payable
in U.S. dollars, to the order of Massachusetts Municipal Bond Portfolio at the
above address. The account to which the subsequent purchase is to be credited
should be identified as to the name(s) of the registered owner(s) and by account
number.
PURCHASES IN EXCHANGE FOR SECURITIES: IBT, as escrow agent, will receive
securities acceptable to Eaton Vance, as Administrator, in exchange for Fund
shares at their net asset value as determined above. The minimum value of
securities or securities and cash accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT or as soon thereafter as possible. The number of Fund
shares to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities, divided by the applicable net asset value per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the current market price for such securities but
does not guarantee the best available price. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, together with a completed
and signed Letter of Transmittal in approved form, as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C Massachusetts Municipal Bond Portfolio
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: Massachusetts Municipal Bond Portfolio
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund shares may create a taxable gain or loss. Each investor should consult
his or her tax adviser with respect to the particular Federal, state and local
tax consequences of exchanging securities for Fund shares.
OTHER PURCHASE PROCEDURES: The Fund intends at all times to be as fully invested
as is feasible in order to maximize its earnings. Accordingly, purchase orders
will be executed at the net asset value next determined after their receipt by
the Fund only if the Fund has received payment in cash or in Federal funds. If
remitted in other than the foregoing manner, such as by money order or personal
check, purchase orders will be executed as of the close of business on the
second Boston business day after receipt. Information on how to procure a
Federal Reserve Draft or to transmit Federal funds by wire is available at your
bank. The bank may charge for these services.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO 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 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., the Fund will make payment in cash for the
net asset value of the shares as of the date determined above, reduced by the
amount of any Federal income tax required to be withheld. Although the Fund
normally expects to make payment in cash for redeemed shares, the Trust, subject
to compliance with applicable regulations, has reserved the right to pay the
redemption price of shares of the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by the Fund from
the Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
REDEMPTIONS BY WIRE: Shareholders who have given authorization in advance may
request that redemption proceeds of $1,000 or more be wired directly to their
bank account. This request may generally be made by letter or telephone to the
Fund Order Department at 800-225-6265, extension 3. However, shareholders
holding certificates for shares in the Fund must return such certificates in
properly endorsed form requesting redemption prior to being eligible to have
redemption proceeds wired directly to their bank account. To use this service a
shareholder must designate his bank and bank account number on the Account
Application form used to open an account. The bank designated may be any bank in
the United States.
Redemption requests received will be processed at 4:00 P.M. and the
redemption proceeds will be wired on the next business day. The shareholder may
be required to pay any costs of such transaction; however, no such costs are
currently charged. The Fund will limit this method of paying redemptions to
shares purchased with cash, Federal Reserve Draft, by wire with Federal funds,
or by other means when payment for shares purchased has been assured. The Fund
reserves the right at any time to suspend or terminate the expedited payment
procedure; however, the Fund would provide reasonable advance notice (in no
event less than 30 days) of its intention to suspend or terminate this
procedure. The Fund will process redemption instructions received by telephone
if the shareholder has authorized telephone redemptions when completing the
Account Application form. However, the Fund will not process redemption requests
by telephone if share certificates have been issued to such shareholders. The
responsibility for the authenticity of redemption instructions received by
telephone is discussed under "Eaton Vance Shareholder Services - Exchange
Privilege".
REDEMPTIONS BY CHECK: To sell shares by writing a check, shareholders holding
shares for which certificates have not been issued may appoint Boston Safe
Deposit and Trust Company ("Boston Safe") their agent and may request on the
Account Application form that Boston Safe provide them with special forms of
checks drawn on Boston Safe. These checks may be made payable by the shareholder
to the order of any person in any amount of $500 or more. When a check is
presented to Boston Safe for payment, the number of full and fractional shares
required to cover the amount of the check will be redeemed from the
shareholder's account by Boston Safe as the shareholder's agent. Through this
procedure the shareholder will continue to be entitled to distributions paid on
shares up to the time the check is presented to Boston Safe for payment. If the
amount of the check is greater than the value of the shares held in the
shareholder's account for which the Fund has collected payment, the check will
be returned and the shareholder may be subject to extra charges.
The shareholder will be required to execute signature cards and will be
subject to Boston Safe's rules and regulations governing such checking accounts.
There is no charge to shareholders for this service. This service may be
terminated or suspended at any time by the Fund or Boston Safe.
If shares were recently purchased, the proceeds of redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem Fund accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL REPORTS CONTAINING FINANCIAL
STATEMENTS. Financial statements included in annual reports are audited by the
Fund's independent certified public accountants. Shortly after the end of each
year, the Fund will furnish all shareholders with information necessary for
preparing Federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. The Fund will not issue share certificates
except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to The Shareholder Services
Group, Inc.
Any questions concerning a shareholder's account or services available may
also be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at
800-225-6265, extension 2, or in writing to The Shareholder Services Group,
Inc., BOS725, P.O. Box 1559, Boston, MA 02104 (please provide the name of the
shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option - Dividends and capital gains will be reinvested in additional
shares.
Income Option - Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option - Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account at the then current net asset value. Furthermore,
the distribution option on the account will be automatically changed to the
Share Option until such time as the shareholder selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from the Principal Underwriter. The cost of
administering such services for the benefit of shareholders who participate in
them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL - FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
may be mailed directly to 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 and the account number should accompany each
investment.
BANK DRAFT INVESTING - FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required.
EXCHANGE PRIVILEGE: You may currently exchange your Fund shares for shares of
any of the following funds at their respective net asset value per share: Eaton
Vance Cash Management Fund, Eaton Vance Income Fund of Boston, Eaton Vance
Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves, EV Traditional
Government Obligations Fund, EV Traditional Greater China Growth Fund, EV
Traditional Greater India Fund, EV Traditional Growth Fund, EV Traditional
Investors Fund, EV Traditional Special Equities fund, EV Traditional Stock Fund
and EV Traditional Total Return Fund. These offers are available only in states
where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at
least $1,000. The exchange privilege may be changed or discontinued without
penalty. Shareholders will be given sixty (60) days notice prior to any
termination or material amendment of the exchange privilege. The Fund does not
permit the exchange to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the other funds are available from your financial service firm
or the Principal Underwriter. The prospectus for each fund describes its
investment objectives and policies, and shareholders should obtain a prospectus
and consider these objectives and policies carefully before requesting an
exchange.
Shares of certain other open-end funds for which Eaton Vance acts as
investment adviser or administrator may be exchanged for Fund shares at their
respective net asset value per share, but subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.,
provided the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call The Shareholder Services Group, Inc. at 800-262-1122
or, within Massachusetts 617-573-9403, Monday through Friday, 9:00 a.m. to 4:00
p.m. (Eastern Standard Time). Shares acquired by telephone exchange must be
registered in the same name(s) and with the same address as the shares being
exchanged. Neither the Fund, the Principal Underwriter nor The Shareholder
Services Group, Inc. will be responsible for the authenticity of exchange
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated are genuine have been followed. Telephone
instructions will be tape recorded. In times of drastic economic or market
changes, a telephone exchange may be difficult to implement. An exchange may
result in a taxable gain or loss.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the fifteenth day of each month or the next business
day thereafter. The Fund anticipates that for tax purposes the entire
distribution, whether taken in cash or reinvested in additional shares of the
Fund, will constitute tax-exempt income to shareholders for Federal income tax
purposes, except for the proportionate part of the distribution that may be
considered taxable income if the Fund has taxable income during the calendar
year. Shareholders reinvesting the monthly distribution should treat the amount
of the entire distribution as the tax cost basis of the additional shares
acquired by reason of such reinvestment. Daily distribution crediting will
commence on the day that collected funds for the purchase of Fund shares are
available at the transfer agent. Shareholders of the Fund will receive timely
Federal income tax information as to the tax-exempt or taxable status of all
distributions made by the Fund during the calendar year. The Fund's net realized
capital gains, if any, consist of the net realized capital gains allocated to
the Fund by the Portfolio for tax purposes, after taking into account any
available capital loss carryovers; the Fund's net realized capital gains, if
any, will be distributed at least once a year, usually in December.
In order to qualify as a regulated investment company under the Internal
Revenue Code (the "Code"), the Fund must satisfy certain requirements relating
to the sources of its income, the distribution of its income, and the
diversification of its assets. In satisfying these requirements, the Fund will
treat itself as owning its proportionate share of each of the Portfolio's assets
and as entitled to the income of the Portfolio properly attribute to such share.
As a regulated investment company under the Code, the Fund does not pay
Federal income or excise taxes to the extent that it distributes to shareholders
its net investment income and net realized capital gains in accordance with the
timing requirements imposed by the Code. As a partnership under the Code, the
Portfolio also does not pay Federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 5). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of the Fund.
Tax-exempt distributions received from the Fund are includable in the tax
base for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible to the extent it is deemed related
to the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of the Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
MASSACHUSETTS TAXES. The Portfolio has received a letter ruling (the "Ruling")
from the Department of Revenue of The Commonwealth of Massachusetts to the
effect that it will be classified as a partnership for Massachusetts tax
purposes. The Ruling provides that, consequently, interest income received by
the Portfolio on (1) debt obligations issued by The Commonwealth of
Massachusetts or its political subdivisions, including agencies or
instrumentalities thereof ("Massachusetts Obligations"), (2) the Governments of
Puerto Rico, Guam, or the United States Virgin Islands ("Possessions
Obligations"), or (3) the United States ("United States Obligations") will be
treated as if realized directly by investors in the Portfolio. The Ruling
concludes that, provided that an investor in the Portfolio qualifies as a
regulated investment company ("RIC") under the Code and satisfies certain notice
requirements of Massachusetts law, (1) dividends paid by such a RIC that are
treated as tax-exempt interest under the Code and that are directly attributable
to interest on Massachusetts Obligations (including the RIC's allocable share of
interest earned by the Portfolio on such obligations) and (2) dividends paid by
such a RIC that are directly attributable to interest on Possessions Obligations
or United States Obligations (including the RIC's allocable share of interest
earned by the Portfolio on such obligations) will, in each case, be excluded
from Massachusetts gross income. Because the Fund intends to continue to invest
in the Portfolio, qualify for treatment as a RIC under the Code, and satisfy the
applicable notice requirements, the Fund's distributions to its shareholders of
its allocable share of the interest received by the Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. The Fund has also been advised by its legal counsel that distributions
properly designated as capital gain dividends under the Code and attributable to
gains realized by the Portfolio and allocated to the Fund on the sale of certain
Massachusetts tax-exempt obligations issued pursuant to statutes that
specifically exempt such gains from Massachusetts taxation will also be exempt
from Massachusetts personal income tax. Other distributions from the Fund
included in a shareholder's Federal gross income, including distributions
derived from net long-term capital gains not described in the preceding sentence
and net short-term capital gains, are generally not exempt from Massachusetts
personal income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for taxable
years beginning after 1995.
Distributions from the Fund will be included in net income, and in the case
of intangible property corporations, shares of the Fund will be included in net
worth for purposes of determining the Massachusetts excise tax on corporations
subject to Massachusetts taxation.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The current yield for the Fund will be calculated by dividing the net
investment income per share during a recent 30-day period by the maximum
offering price per share (net asset value) of the Fund on the last day of the
period and annualizing the resulting figure. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by one minus the tax
rate. The Fund's average annual total return is determined by computing the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (net asset value) for specified periods ending with the
most recent calendar quarter, assuming reinvestment of all distributions. The
total return calculation assumes a complete redemption of the investment. The
Fund may also publish annual and cumulative total return figures from time to
time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
The Fund's yield is calculated using a standardized formula, the income
component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution. The monthly distribution tends to be
relatively stable and may be more or less than the amount of net investment
income and short-term capital gain actually earned by the Fund during the month.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's current yield or total
return for any prior period should not be considered a representation of what an
investment may earn or what an investor's yield or total return may be in any
future period. If the expenses of the Fund are paid by Eaton Vance, the Fund's
performance will be higher.
<PAGE>
INVESTMENT ADVISER OF MASSACHUSETTS MUNICIPAL
MASSACHUSETTS TAX FREE PORTFOLIO
Boston Management and Research BOND PORTFOLIO
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF MASSACHUSETTS
MUNICIPAL BOND PORTFOLIO
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN PROSPECTUS
Investors Bank & Trust Company
24 Federal Street FEBRUARY 1, 1995
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
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
24 FEDERAL STREET
BOSTON, MA 02110