<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
1933 ACT FILE NO. 33-572
1940 ACT FILE NO. 811-4409
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 63 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 65 [X]
EATON VANCE MUNICIPALS TRUST
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-482-8260
-------------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
ALAN R. DYNNER, 24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
--------------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
<TABLE>
It is proposed that this filing will become effective pursuant to rule 485
(check appropriate box):
<S> <C>
[ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (a)(1)
[X] on January 1, 1997 pursuant to paragraph (b) [ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(2).
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
</TABLE>
Alabama Municipals Portfolio, Arkansas Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana Municipals
Portfolio, Maryland Municipals Portfolio, Missouri Municipals Portfolio, North
Carolina Municipals Portfolio, Oregon Municipals Portfolio, South Carolina
Municipals Portfolio, Tennessee Municipals Portfolio and Virginia Municipals
Portfolio have also executed this Registration Statement.
<TABLE>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
AMOUNT OF PROPOSED MAXIMUM PROPOSED AGGREGATE AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE MAXIMUM REGISTRATION
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest 10,931,539 $9.38(1) $102,537,838(2) $100
=============================================================================================================
</TABLE>
(1) Computed under Rule 457(d) on the basis of the maximum aggregate offering
price per share at the close of business on November 11, 1996.
(2) Registrant elects to calculate the maximum aggregate offering price pursuant
to Rule 24e-2 for those series with a fiscal year end of August 31, 1996.
$205,945,266 of shares were redeemed during the fiscal year ended August 31,
1996. $93,969,743 of shares were used for reductions pursuant to Paragraph
(c) of Rule 24f-2 during such fiscal year. $102,207,838 of shares redeemed
are being used for the reduction of the registration fee in this Amendment.
While no fee is required for the $102,207,838 of shares, the Registrant has
elected to register, for $100, an additional $330,000 of shares.
The Registrant has filed a Declaration pursuant to Rule 24f-2. On September
4, 1996, Registrant filed its "Notice" as required by that Rule for the series
of the Registrant with the fiscal year end of July 31, 1996, on October 15, 1996
filed its "Notice" for the series of the Registrant with the fiscal year end of
August 31, 1996, and on November 21, 1996 filed its "Notice" for the series of
the Registrant with the fiscal year end of September 30, 1996. Registrant
continues its election to register an indefinite number of shares of beneficial
interest pursuant to Rule 24f-2.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheets required by Rule 481(a) under Securities Act of
1933
<TABLE>
<CAPTION>
Part A -- The Combined Prospectuses of:
<S> <C>
EV Traditional Alabama Municipals Fund EV Marathon Alabama Municipals Fund
EV Traditional Arkansas Municipals Fund EV Marathon Arkansas Municipals Fund
EV Traditional Georgia Municipals Fund EV Marathon Georgia Municipals Fund
EV Traditional Kentucky Municipals Fund EV Marathon Kentucky Municipals Fund
EV Traditional Louisiana Municipals Fund EV Marathon Louisiana Municipals Fund
EV Traditional Maryland Municipals Fund EV Marathon Maryland Municipals Fund
EV Traditional Missouri Municipals Fund EV Marathon Missouri Municipals Fund
EV Traditional North Carolina EV Marathon North Carolina
Municipals Fund Municipals Fund
EV Traditional Oregon Municipals Fund EV Marathon Oregon Municipals Fund
EV Traditional South Carolina EV Marathon South Carolina
Municipals Fund Municipals Fund
EV Traditional Tennessee Municipals Fund EV Marathon Tennessee Municipals Fund
EV Traditional Virginia Municipals Fund EV Marathon Virginia Municipals Fund
Part B -- The Combined Statements of Additional Information of:
EV Traditional Alabama Municipals Fund EV Marathon Alabama Municipals Fund
EV Traditional Arkansas Municipals Fund EV Marathon Arkansas Municipals Fund
EV Traditional Georgia Municipals Fund EV Marathon Georgia Municipals Fund
EV Traditional Kentucky Municipals Fund EV Marathon Kentucky Municipals Fund
EV Traditional Louisiana Municipals Fund EV Marathon Louisiana Municipals Fund
EV Traditional Maryland Municipals Fund EV Marathon Maryland Municipals Fund
EV Traditional Missouri Municipals Fund EV Marathon Missouri Municipals Fund
EV Traditional North Carolina EV Marathon North Carolina
Municipals Fund Municipals Fund
EV Traditional Oregon Municipals Fund EV Marathon Oregon Municipals Fund
EV Traditional South Carolina EV Marathon South Carolina
Municipals Fund Municipals Fund
EV Traditional Tennessee Municipals Fund EV Marathon Tennessee Municipals Fund
EV Traditional Virginia Municipals Fund EV Marathon Virginia Municipals Fund
</TABLE>
Part C -- Other Information
Signatures
Exhibit Index Required by Rule 483(b) under the Securities Act
of 1933
Exhibits
This Amendment is not intended to amend the Prospectuses and Statements of
Additional Information of any other Series of the Registrant not identified
above.
<PAGE>
<TABLE>
EATON VANCE MUNICIPALS TRUST
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
<CAPTION>
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ --------------------------------------------
<S> <C> <C>
1. ..................... Cover Page Cover Page
2. ..................... Synopsis Shareholder and Fund Expenses
3. ..................... Condensed Financial Information The Funds' Financial Highlights; Performance
Information
4. ..................... General Description of Registrant The Funds' Investment Objectives; Investment
Policies and Risks; Organization of the
Funds and the Portfolios
5. ..................... Management of the Fund Management of the Funds and the Portfolios
5A...................... Management's Discussion of Fund Not Applicable
Performance
6. ..................... Capital Stock and Other Securities Organization of the Funds and the Portfolios;
Reports to Shareholders; The Lifetime
Investing Account/Distribution Options;
Distributions and Taxes
7. ..................... Purchase of Securities Being Offered Valuing Fund Shares; How to Buy Fund Shares;
The Lifetime Investing Account/Distribution
Options; Distribution Plans (for Marathon
Funds) or Service Plans (for Traditional
Funds); The Eaton Vance Exchange Privilege;
Eaton Vance Shareholder Services; Statement
of Intention and Escrow Agreement
(Traditional Funds only)
8. ..................... Redemption or Repurchase How to Redeem Fund Shares
9. ..................... Pending Legal Proceedings Not Applicable
<CAPTION>
PART B
ITEM NO. ITEM CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- -------- ------------ --------------------------------------------
<S> <C> <C>
10. ..................... Cover Page Cover Page
11. ..................... Table of Contents Table of Contents
12. ..................... General Information and History Other Information
13. ..................... Investment Objectives and Policies Additional Information about Investment
Policies; Investment Restrictions
14. ..................... Management of the Fund Trustees and Officers; Fees and Expenses
15. ..................... Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
16. ..................... Investment Advisory and Other Investment Adviser and Administrator;
Services Distribution Plan (for Marathon Funds) or
Service Plan (for Traditional Funds);
Custodian; Independent Certified Public
Accountants; Fees and Expenses
17. ..................... Brokerage Allocation and Other Portfolio Security Transactions; Fees and
Practices Expenses
18. ..................... Capital Stock and Other Securities Other Information
19. ..................... Purchase, Redemption and Pricing of Determination of Net Asset Value; Principal
Securities Being Offered Underwriter; Service for Withdrawal;
Services for Accumulation (for Traditional
Funds only); Distribution Plan (for
Marathon Funds) or Service Plan (for
Traditional Funds); Fees and Expenses
20. ..................... Tax Status Taxes; Tax Equivalent Yield Table
21. ..................... Underwriters Principal Underwriter; Fees and Expenses
22. ..................... Calculation of Performance Data Investment Performance; Performance
Information
23. ..................... Financial Statements Financial Statements
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV MARATHON
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
EV MARATHON ALABAMA MUNICIPALS FUND EV MARATHON MISSOURI MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND EV MARATHON VIRGINIA MUNICIPALS FUND
THE EV MARATHON MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THEIR
RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN
THIS PROSPECTUS. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED
OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE
AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO
OF SECURITIES. EACH FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future
reference. A combined Statement of Additional Information dated January 1,
1997 for the Funds, as supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
This Statement of Additional Information is available without charge from the
Funds' principal underwriter, Eaton Vance Distributors, Inc. (the "Principal
Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone (800) 225-6265).
The Portfolios' investment adviser is Boston Management and Research (the
"Investment Adviser"), a wholly-owned subsidiary of Eaton Vance Management,
and Eaton Vance Management is the administrator (the "Administrator") of the
Funds. The offices of the Investment Adviser and the Administrator are located
at 24 Federal Street, Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses .......................... 2 How to Redeem Fund Shares .......................... 22
The Funds' Financial Highlights ........................ 5 Reports to Shareholders ............................ 24
The Funds' Investment Objectives ....................... 12 The Lifetime Investing Account/Distribution
Investment Policies and Risks .......................... 13 Options .......................................... 24
Organization of the Funds and the Portfolios ........... 16 The Eaton Vance Exchange Privilege ................. 25
Management of the Funds and the Portfolios ............. 17 Eaton Vance Shareholder Services ................... 26
Distribution Plans ..................................... 19 Distributions and Taxes ............................ 26
Valuing Fund Shares .................................... 21 Performance Information ............................ 27
How to Buy Fund Shares ................................. 21 Appendix -- State Specific Information ............. 28
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED JANUARY 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
---------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemption during
the First Seven Years (as a percentage of redemption proceeds exclusive of all
reinvestments and capital appreciation in the account) 5.00%-0%
</TABLE>
<TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
---------------------------------------------------------------------------------------------------------
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.40% 0.36% 0.40% 0.41%
Rule 12b-1 Distribution (and Service) Fees 0.93 0.92 0.92 0.93
Other Expenses 0.24 0.28 0.26 0.23
---- ---- ---- ----
Total Operating Expenses 1.57% 1.56% 1.58% 1.57%
==== ==== ==== ====
EXAMPLE
---------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
1 Year $ 66 $ 66 $ 66 $ 66
3 Years 90 89 90 90
5 Years 106 105 106 106
10 Years 187 186 188 187
<CAPTION>
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and
(b) no redemptions:
<S> <C> <C> <C> <C>
1 Year $ 16 $ 16 $ 16 $ 16
3 Years 50 49 50 50
5 Years 86 85 86 86
10 Years 187 186 188 187
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
---------------------------------------------------------------------------------------------------------
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
--------- -------- -------- --------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.12% 0.40% 0.37% 0.43%
Rule 12b-1 Distribution (and Service) Fees 0.92 0.91 0.92 0.93
Other Expenses 0.37 0.26 0.27 0.23
---- ---- ---- ----
Total Operating Expenses
(after reduction) 1.41% 1.57% 1.56% 1.59%
==== ==== ==== ====
EXAMPLE
---------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
--------- -------- -------- --------------
<S> <C> <C> <C> <C>
1 Year $ 64 $ 66 $ 66 $ 66
3 Years 85 90 89 90
5 Years 97 106 105 107
10 Years 169 187 186 189
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b)
no redemptions:
<S> <C> <C> <C> <C>
1 Year $ 14 $ 16 $ 16 $ 16
3 Years 45 50 49 50
5 Years 77 86 85 87
10 Years 169 187 186 189
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
---------------------------------------------------------------------------------------------------------
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
------ -------------- --------- --------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.41% 0.33% 0.31% 0.43%
Rule 12b-1 Distribution (and Service) Fees 0.92 0.92 0.91 0.92
Other Expenses 0.23 0.35 0.31 0.21
---- ---- ---- ----
Total Operating Expenses 1.56% 1.60% 1.53% 1.56%
==== ==== ==== ====
EXAMPLE
---------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
------ -------------- --------- --------
<S> <C> <C> <C> <C>
1 Year $ 66 $ 66 $ 66 $ 66
3 Years 89 90 88 89
5 Years 105 107 103 105
10 Years 186 190 182 186
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b)
no redemptions:
1 Year $ 16 $ 16 $ 16 $ 16
3 Years 49 50 48 49
5 Years 85 87 83 85
10 Years 186 190 182 186
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on its expenses for the most recent fiscal
year. Absent a fee reduction, the Investment Adviser Fee and Total Operating
Expenses for the Louisiana Fund would have been 0.23% and 1.53%, respectively.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual
return will vary. For further information regarding the expenses of the Funds
and the Portfolios see "The Funds" Financial Highlights'', "Management of the
Funds and the Portfolios" and "How to Redeem Fund Shares". A long-term
shareholder in a Fund may pay more than the economic equivalent of the maximum
front-end sales charge permitted by a rule of the National Association of
Securities Dealers, Inc. See "Distribution Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more
than six years prior to redemption, (b) shares acquired through the
reinvestment of distributions or (c) any appreciation in value of other shares
in the account (see "How to Redeem Fund Shares") and no such charge is imposed
on exchanges of Fund shares for shares of one or more other funds listed under
"The Eaton Vance Exchange Privilege."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 18.
Each Fund invests exclusively in its corresponding Portfolio. Other investment
companies with different distribution arrangements and fees are investing in
the Portfolios and others may do so in the future. See "Organization of the
Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's annual report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its annual
report to shareholders which may be obtained without charge by contacting the
Principal Underwriter.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA FUND ARKANSAS FUND
------------------------------------------------------- ---------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------------------- ---------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
------------------------------- ------------------- ------------------------------ -------------
1996 1995 1994** 1993 1992++ 1996 1995 1994** 1993++
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.440 $10.210 $11.060 $10.340 $10.000 $10.250 $10.140 $10.910 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.470 $ 0.479 $ 0.425 $ 0.475 $ 0.208 $ 0.450 $ 0.460 $ 0.431 $ 0.471
Net realized and
unrealized gain (loss)
on investments 0.030 0.244 (0.769) 0.837 0.385+++ (0.038) 0.132 (0.703) 1.025
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.500 $ 0.723 $(0.344) $ 1.312 $ 0.593 $ 0.412 $ 0.592 $(0.272) $ 1.496
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.480) $(0.479) $(0.425) $(0.475) $(0.208) $(0.471) $(0.460) $(0.431) $(0.471)
In excess of net
investment income(4) -- (0.014) (0.081) (0.117) (0.045) (0.001) (0.022) (0.067) (0.115)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.480) $(0.493) $(0.506) $(0.592) $(0.253) $(0.472) $(0.482) $(0.498) $(0.586)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end
of year $10.460 $10.440 $10.210 $11.060 $10.340 $10.190 $10.250 $10.140 $10.910
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 4.85% 7.38% (3.18)% 13.09% 5.71% 4.05% 6.15% (2.53)% 15.00%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $101,692 $108,642 $105,553 $84,621 $21,105 $72,868 $80,823 $82,436 $59,205
Ratio of net expenses to
average daily net
assets(2)(4) 1.57% 1.51% 1.43%+ 1.37% 1.01%+ 1.56% 1.50% 1.17%+ 0.88%+
Ratio of net expenses to
average net assets after
custodian fee
reduction(2) 1.52% -- -- -- -- 1.54% -- -- --
Ratio of net investment
income to average
daily net assets 4.44% 4.74% 4.35%+ 4.30% 4.49%+ 4.34% 4.67% 4.47%+ 4.27%+
PORTFOLIO TURNOVER(3)
-- -- -- 15% 13% -- -- 5% 13%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share and the ratios would
have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.462 $ 0.185 $ 0.409 $ 0.411
======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.49% 1.50%+ 1.40%+ 1.42%+
Net investment income 4.18% 4.00%+ 4.24%+ 3.73%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GEORGIA FUND KENTUCKY FUND
--------------------------------------------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED
---------------------------------------------------- ---------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
------------------------------- ----------------- ----------------------------- ------------------
1996 1995 1994** 1993 1992++ 1996 1995 1994** 1993 1992++
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.790 $ 9.800 $10.750 $10.120 $10.000 $ 9.990 $ 9.850 $10.780 $10.090 $10.000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.451 $ 0.450 $ 0.413 $ 0.459 $ 0.380 $ 0.450 $ 0.458 $ 0.415 $ 0.462 $ 0.363
Net realized and
unrealized gain
(loss) on
investments 0.024 0.007++ (0.841) 0.776 0.215 (0.009)++ 0.163 (0.811) 0.820 0.192
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income
(loss) from
operations $ 0.475 $ 0.457 $(0.428) $ 1.235 $ 0.595 $ 0.441 $ 0.621 $(0.396) $ 1.282 $ 0.555
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.455) $(0.450) $(0.413) $(0.459) $(0.380) $(0.450) $(0.458) $(0.415) $(0.462) $(0.363)
In excess of net
investment income(4) -- (0.017) (0.065) (0.129) (0.095) (0.011) (0.023) (0.075) (0.125) (0.102)
From net realized
gain on investment
transactions -- -- -- (0.017) -- -- -- -- (0.005) --
In excess of net
realized gain on
investment
transactions(4) -- -- (0.044) -- -- -- -- (0.044) -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.455) $(0.467) $(0.522) $(0.605) $(0.475) $(0.461) $(0.481) $(0.534) $(0.592) $(0.465)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end
of year $ 9.810 $ 9.790 $ 9.800 $10.750 $10.120 $ 9.970 $ 9.990 $ 9.850 $10.780 $10.090
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 4.91% 4.90% (4.08)% 12.60% 5.85% 4.45% 6.61% (3.78)% 13.05% 5.45%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $106,992 $120,143 $134,481 $120,043 $42,156 $131,357 $143,106 $141,994 $20,073 $46,835
Ratio of net expenses
to average daily net
assets(2)(5) 1.58% 1.49% 1.41%+ 1.52% 1.13%+ 1.57% 1.52% 1.44%+ 1.50% 1.44%+
Ratio of net expenses
to average daily net
assets after custodian
fee reduction(2) 1.52% -- -- -- -- 1.54% -- -- -- --
Ratio of net investment
income to average
daily net assets 4.55% 4.72% 4.39%+ 4.27% 4.72%+ 4.45% 4.74% 4.39%+ 4.29% 4.56%+
PORTFOLIO TURNOVER(3) -- -- -- 20% 33% -- -- -- 21% 64%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or Administrator. Had such actions not been taken, net investment income per share and the ratios would have
been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.341 $ 0.357
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.61%+ 1.52%+
Net investment income 4.24%+ 4.48%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA FUND MARYLAND FUND
-------------------------------------------- ----------------------------------------------------------
YEAR ENDED YEAR ENDED
--------------------------------------------- ----------------------------------------------------------
SEPTEMBER
AUGUST 31, 30, AUGUST 31, SEPTEMBER 30,
-------------------------------- --------- ------------------------------- ---------------------
1996 1995 1994** 1993++ 1996 1995 1994** 1993 1992++
------- ------- ------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.980 $10.010 $11.130 $10.000 $10.230 $10.070 $ 11.070 $10.290 $10.000
------- ------- ------- ------- ------- ------- -------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.486 $ 0.487 $ 0.447 $ 0.478 $ 0.464 $ 0.476 $ 0.428 $ 0.466 $ 0.303
Net realized and
unrealized gain
(loss) on
investments (0.016) (0.006)+++ (0.937) 1.234 0.086 0.169 (0.922) 0.890 0.375+++
------- ------- ------- ------- ------- ------- -------- ------- -------
Total income
(loss) from
operations $ 0.470 $ 0.481 $(0.490) $ 1.712 $ 0.550 $ 0.645 $ (0.494) $ 1.356 $ 0.678
------- ------- ------- ------- ------- ------- -------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.490) $(0.487) $(0.447) $(0.478) $(0.480) $(0.476) $ (0.428) $(0.466) $(0.303)
In excess of net
investment
income(4) -- (0.024) (0.074) (0.104) -- (0.009) (0.070) (0.110) (0.085)
In excess of net
realized gain
on investment
transactions(4) -- -- (0.109) -- -- -- (0.008) -- --
------- ------- ------- ------- ------- ------- -------- ------- -------
Total
distributions $(0.490) $(0.511) $(0.630) $(0.582) $(0.480) $(0.485) $ (0.506) $(0.576) $(0.388)
------- ------- ------- ------- ------- ------- -------- ------- -------
NET ASSET VALUE,
end of year $ 9.960 $ 9.980 $10.010 $11.130 $10.300 $10.230 $ 10.070 $11.070 $10.290
======= ======= ======= ======= ======= ======= ======== ======= =======
TOTAL RETURN(1) 4.77% 5.08% (4.56)% 17.26% 5.44% 6.71% (4.56)% 13.61% 6.65%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end
of period
(000 omitted) $32,994 $31,836 $29,020 $17,935 $109.243 $113,826 $116,721 $95,226 $29,180
Ratio of net expenses to
average daily net
assets(2)(4) 1.41% 1.31% 1.08%+ 1.07%+ 1.57% 1.50% 1.43%+ 1.43% 1.30%+
Ratio of net expenses to
average daily net
assets after custodian
fee reduction(2) 1.34% -- -- -- 1.55% -- -- -- --
Ratio of net investment
income to average
daily net assets 4.82% 4.97% 4.62%+ 4.27%+ 4.46% 4.82% 4.44%+ 4.28% 4.25%+
PORTFOLIO TURNOVER(3) -- -- 14% 86% -- -- -- 12% 3%
<PAGE>
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share and the ratios would
have been as follows:
NET INVESTMENT
INCOME PER SHARE $ 0.474 $ 0.470 $ 0.412 $ 0.401 $ 0.461 $ 0.280
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.53% 1.42% 1.44%+ 1.76%+ 1.48% 1.62%+
Expenses after
custodial fee
reduction(2) 1.45% -- -- -- -- --
Net investment
income 4.70% 4.86% 4.26%+ 3.58%+ 4.23% 3.93%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MISSOURI FUND NORTH CAROLINA FUND
------------------------------------------------ ------------------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------------ ------------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
---------------------------- ---------------- ------------------------------- ------------------
1996 1995 1994** 1993 1992++ 1996 1995 1994** 1993 1992++
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.510 $10.240 $11.250 $10.400 $10.000 $ 9.960 $ 9.970 $10.940 $10.300 $10.000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.476 $ 0.477 $ 0.423 $ 0.470 $ 0.200 $ 0.452 $ 0.466 $ 0.423 $ 0.468 $ 0.456
Net realized and
unrealized gain
(loss) on
investments 0.003 0.289 (0.904) 1.005 0.455 0.026 0.011+++ (0.895) 0.794 0.423+++
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income
(loss) from
operations $ 0.479 $ 0.766 $(0.481) $ 1.475 $ 0.655 $ 0.478 $ 0.477 $(0.472) $ 1.262 $ 0.879
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.476) $(0.477) $(0.423) $(0.470) $(0.200) $(0.455) $(0.466) $(0.423) $(0.468) $(0.456)
In excess of net
investment
income(4) (0.003) (0.019) (0.084) (0.128) (0.055) (0.013) (0.021) (0.075) (0.120) (0.123)
In excess of net
realized gain
on investment
transactions(4) -- -- (0.022) (0.027) -- -- -- -- (0.034) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions $(0.479) $(0.496) $(0.529) $(0.625) $(0.255) $(0.468) $(0.487) $(0.498) $(0.622) $(0.579)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year $10.510 $10.510 $10.240 $11.250 $10.400 $ 9.970 $ 9.960 $ 9.970 $10.940 $10.300
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 4.60% 7.82% (4.33)% 14.66% 6.33% 4.83% 5.03% (4.40)% 12.69% 8.75%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $82,385 $89,811 $91,227 $76,653 $25,225 $169,889 $188,450 $192,667 $173,828 $71,733
Ratio of net expenses
to average daily
net assets(2)(4) 1.56% 1.53% 1.49%+ 1.52% 1.32%+ 1.59% 1.51% 1.42%+ 1.52% 1.35%+
Ratio of net expenses
to average daily
net assets after
custodian fee
reduction(2) 1.54% -- -- -- -- 1.54% -- -- -- --
Ratio of net investment
income to average
daily net assets 4.47% 4.72% 4.30%+ 4.23% 4.31%+ 4.47% 4.78% 4.43%+ 4.34% 4.54%+
PORTFOLIO TURNOVER(3) -- -- -- 14% 21% -- -- -- 16% 52%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or Administrator. Had such actions not been taken, net investment income per share and the ratios would have
been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.467 $ 0.192 $ 0.434
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.55% 1.49%+ 1.57%+
Net investment income 4.20% 4.14%+ 4.32%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON FUND SOUTH CAROLINA
------------------------------------------------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------------------- ---------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
------------------------------- ------------------ --------------------------------- -------------
1996 1995 1994** 1993 1992++ 1996 1995 1994** 1993++
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.310 $10.090 $11.130 $10.270 $10.000 $10.000 $ 9.940 $10.890 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.450 $ 0.455 $ 0.415 $ 0.459 $ 0.351 $ 0.467 $ 0.460 $ 0.408 $ 0.461
Net realized and
unrealized gain (loss)
on investments (0.061) 0.241 (0.869) 0.983 0.368 0.021 0.071 (0.870) 0.986
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.389 $ 0.696 $(0.454) $ 1.442 $ 0.719 $ 0.488 $ 0.531 $(0.462) $ 1.447
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.457) $(0.455) $(0.415) $(0.459) $(0.351) $(0.468) $(0.460) $(0.408) $(0.461)
In excess of net
investment income(4) (0.002) (0.021) (0.078) (0.117) (0.098) -- (0.011) (0.080) (0.096)
From net realized
gain on investment
transactions -- -- (0.093) (0.006) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.459) $(0.476) $(0.586) $(0.582) $(0.449) $(0.468) $(0.471) $(0.488) $(0.557)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end
of year $10.240 $10.310 $10.090 $11.130 $10.270 $10.020 $10.000 $ 9.940 $10.890
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 3.80% 7.22% (4.21)% 14.47% 7.10% 4.92% 5.64% (4.33)% 14.50%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $128,580 $145,056 $151,127 $128,229 $41,703 $57,217 $59,955 $59,878 $43,169
Ratio of net expenses
to average daily net
assets(2)(4) 1.56% 1.53% 1.43%+ 1.55% 1.47%+ 1.60% 1.49% 1.36%+ 1.07%+
Ratio of net expenses
to average daily net
assets after custodian
fee reduction(2) 1.53% -- -- -- -- 1.58% -- -- --
Ratio of net investment
income to average
daily net assets 4.33% 4.59% 4.28%+ 4.22% 4.27%+ 4.60% 4.77% 4.27%+ 4.22%+
PORTFOLIO TURNOVER(3) -- -- -- 23% 44% -- -- 3% 13%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/or Adminstrator. Has such actions not been taken, net investment income per share and the ratios would have
been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.338 $ 0.421
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.63%+ 1.44%+
Net investment income 4.11%+ 3.85%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TENNESSEE FUND VIRGINIA FUND
---------------------------------------------- ---------------------------------------------------------
YEAR ENDED YEAR ENDED
---------------------------------------------- ---------------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
-------------------------- ----------------- ----------------------------- ------------------------
1996 1995 1994** 1993 1992++ 1996 1995 1994** 1993 1992 1991++
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.110 $10.020 $11.070 $10.010 $10.000 $10.260 $10.120 $11.060 $10.460 $10.200 $10.000
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.457 $ 0.468 $ 0.426 $ 0.466 $ 0.040 $ 0.471 $ 0.479 $ 0.438 $ 0.483 $ 0.526 $ 0.087
Net realized and
unrealized
gain (loss) on
investments 0.059 0.115 (0.848) 1.158 0.027+++ 0.006 0.161 (0.864) 0.762 0.385 0.220+++
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income
(loss) from
operations $ 0.516 $ 0.583 $(0.422) $ 1.624 $ 0.067 $ 0.477 $ 0.640 $(0.426) $ 1.245 $ 0.911 $ 0.307
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net
investment
income $(0.475) $(0.468) $(0.426) $(0.466) $(0.040) $(0.471) $(0.479) $(0.438) $(0.483) $(0.526) $(0.087)
In excess of net
investment
income(4) (0.001) (0.025) (0.071) (0.098) (0.017) (0.006) (0.021) (0.076) (0.130) (0.120) (0.020)
From net realized
gain on
investment
transactions -- -- (0.094) -- -- -- -- -- (0.022) (0.005) --
In excess of net
realized gain
on investment
transactions -- -- (0.037) -- -- -- -- -- (0.010) -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions $(0.476) $(0.493) $(0.628) $(0.564) $(0.057) $(0.477) $(0.500) $(0.514) $(0.645) $(0.651) $(0.107)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year $10.150 $10.110 $10.020 $11.070 $10.010 $10.260 $10.260 $10.120 $11.060 $10.460 $10.200
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.16% 6.12% (3.93)% 16.97% 0.01% 4.67% 6.62% (3.95)% 12.33% 9.16% 2.82%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end
of period
(000 omitted) $54,533 $57,484 $55,379 $39,648 $43,475 $175,918 $189,535 $193,420 $175,426 $72,629 $11,081
Ratio of net expenses
to average daily
net assets(2)(4) 1.53% 1.47% 1.37%+ 1.30% 1.00%+ 1.56% 1.50% 1.44%+ 1.52% 1.36% 1.27%+
Ratio of net expenses
to average daily
net assets after
custodian fee
reduction(2) 1.51% -- -- -- -- 1.53% -- -- -- -- --
Ratio of net investment
income to average
daily net assets 4.45% 4.77% 4.44%+ 4.24% 2.91%+ 4.52% 4.81% 4.51%+ 4.42% 4.86% 4.47%+
PORTFOLIO TURNOVER(3) -- -- -- 28% 0% -- -- -- 27% 85% 10%
<PAGE>
*For the periods indicated, the operating expenses of each Fund reflect a reduction of expenses by the Investment Adviser and/or the
Administrator. Had such actions not been taken, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.432 $ 0.025 $ 0.501 $ 0.079
======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.61% 2.10%+ 1.59% 1.68%+
Net investment income 3.93% 1.81%+ 4.63% 4.06%+
(See footnotes on page 11.)
Footnotes:
** For the eleven months ended August 31, 1994.
+ Annualized.
++ For the period from the start of business July 26, 1991 to September 30, 1991 for the Virginia Fund, for the period from the
start of business December 23, 1991, December 23, 1991, February 3, 1992, May 1, 1992, October 23, 1991, December 24, 1991 and
August 25, 1992 to September 30, 1992 for the Georgia, Kentucky, Maryland, Missouri, North Carolina, Oregon, and Tennessee
Funds, respectively, and for the period from the start of business May 1, 1992 to September 30, 1993 for the Alabama Fund and
for the period from the start of business, October 2, 1992 to September 30, 1993 for the Arkansas, Louisiana and South Carolina
Funds, respectively.
+++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(1) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on the
last day of each period reported. Distributions, if any, are assumed to be reinvested at the net asset value on the payable
date. Total return is computed on a non-annualized basis.
(2) Includes the Fund's share of its corresponding Portfolio's allocated expenses subsequent to February 1, 1993.
(3) Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to a
Portfolio is shown in the Portfolio's financial statements which are included in the Funds' annual report.
(4) The Funds have followed the Statement of Position (SOP) 93-2: Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distribution by Investment Companies. The SOP requires that differences in the
recognition or classification of income between the financial statements and tax earnings and profits that result in temporar
over-distributions for financial statement purposes, are classified as distributions in excess of net investment income or
accumulated net realized gains.
(5) The expense ratios for the year ended July 31, 1996 have been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require the Fund to increase its expense ratio by the effect of any expense offset arrangements with its
service providers or those of the Portfolio. The expense ratios for each of the periods on or before July 31, 1995 have not been
adjusted to reflect this change.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio"). Each
Portfolio invests primarily in municipal obligations (as described below)
which are rated at least investment grade by a major rating agency or, if
unrated, determined to be of at least investment grade quality by the
Investment Adviser. Each Portfolio has the same investment objective as its
corresponding Fund.
EV MARATHON ALABAMA MUNICIPALS FUND (the "Alabama Fund") seeks to provide
current income exempt from regular federal income tax and Alabama State
personal income taxes. The Alabama Fund seeks to meet its objective by
investing its assets in the Alabama Municipals Portfolio (the "Alabama
Portfolio").
EV MARATHON ARKANSAS MUNICIPALS FUND (the "Arkansas Fund") seeks to provide
current income exempt from regular federal income tax and Arkansas State
personal income taxes. The Arkansas Fund seeks to meet its objective by
investing its assets in the Arkansas Municipals Portfolio (the "Arkansas
Portfolio").
EV MARATHON GEORGIA MUNICIPALS FUND (the "Georgia Fund") seeks to provide
current income exempt from regular federal income tax and Georgia State
personal income taxes. The Georgia Fund seeks to meet its objective by
investing its assets in the Georgia Municipals Portfolio (the "Georgia
Portfolio").
EV MARATHON KENTUCKY MUNICIPALS FUND (the "Kentucky Fund") seeks to provide
current income exempt from regular federal income tax and Kentucky state
personal income taxes in the form of an investment exempt from the Kentucky
intangibles tax. The Kentucky Fund seeks to meet its objective by investing
its assets in the Kentucky Municipals Portfolio (the "Kentucky Portfolio").
EV MARATHON LOUISIANA MUNICIPALS FUND (the "Louisiana Fund") seeks to provide
current income exempt from regular federal income tax and Louisiana State
individual and corporate income taxes. The Louisiana Fund seeks to meet its
objective by investing its assets in the Louisiana Municipals Portfolio (the
"Louisiana Portfolio").
EV MARATHON MARYLAND MUNICIPALS FUND (the "Maryland Fund") seeks to provide
current income exempt from regular federal income tax and Maryland State and
local income taxes. The Maryland Fund seeks to meet its objective by investing
its assets in the Maryland Municipals Porfolio (the "Maryland Portfolio").
EV MARATHON MISSOURI MUNICIPALS FUND (the "Missouri Fund") seeks to provide
current income exempt from regular federal income tax and Missouri State
personal income taxes. The Missouri Fund seeks to meet its objective by
investing its assets in the Missouri Municipals Portfolio (the "Missouri
Portfolio").
EV MARATHON NORTH CAROLINA MUNICIPALS FUND (the "North Carolina Fund") seeks
to provide current income exempt from regular federal income tax and North
Carolina State personal income taxes. The North Carolina Fund seeks to meet
its objective by investing its assets in the North Carolina Municipals
Portfolio (the "North Carolina Portfolio").
EV MARATHON OREGON MUNICIPALS FUND (the "Oregon Fund") seeks to provide
current income exempt from regular federal income tax and Oregon State
personal income taxes. The Oregon Fund seeks to meet its objective by
investing its assets in the Oregon Municipals Portfolio (the "Oregon
Portfolio").
EV MARATHON SOUTH CAROLINA MUNICIPALS FUND (the "South Carolina Fund") seeks
to provide current income exempt from regular federal income tax and South
Carolina State personal income taxes. The South Carolina Fund seeks to meet
its objective by investing its assets in the South Carolina Municipals
Portfolio (the "South Carolina Portfolio").
EV MARATHON TENNESSEE MUNICIPALS FUND (the "Tennessee Fund") seeks to provide
current income exempt from regular federal income tax and Tennessee State
personal income taxes. The Tennessee Fund seeks to meet its objective by
investing its assets in the Tennessee Municipals Portfolio (the "Tennessee
Portfolio").
EV MARATHON VIRGINIA MUNICIPALS FUND (the "Virginia Fund") seeks to provide
current income exempt from regular federal income tax and Virginia state
personal income taxes. The Virginia Fund seeks to meet its objective by
investing its assets in the Virginia Municipals Portfolio (the "Virginia
Portfolio").
INVESTMENT POLICIES AND RISKS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE
WITH ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy
is a fundamental policy of each Fund and its corresponding Portfolio, which
may not be changed unless authorized by a vote of the Fund's shareholders or
that Portfolio's investors, as the case may be.
At least 75% of the net assets of the Alabama Portfolio, Arkansas Portfolio,
Georgia Portfolio, Louisiana Portfolio, Maryland Portfolio, Missouri Portfolio,
North Carolina Portfolio, South Carolina Portfolio, Tennessee Portfolio and
Virginia Portfolio and at least 70% of the net assets of the Kentucky Portfolio
and Oregon Portfolio will normally be invested in obligations rated at least
investment grade at the time of investment (which are those rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by either
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch")) or, if unrated, determined by the Investment Adviser to be of at
least investment grade quality. The balance of each Portfolio's net assets may
be invested in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. Municipal obligations rated
Baa or BBB may have speculative characteristics. Also, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher rated
obligations. Securities rated below Baa or BBB are commonly known as "junk
bonds". A Portfolio may retain an obligation whose rating drops below B after
its acquisition if such retention is considered desirable by the Investment
Adviser. See "Additional Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public
and private purposes, the interest on which is, in the opinion of bond
counsel, exempt from regular federal income tax. Public purpose municipal
bonds include general obligation and revenue bonds. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility, or from the proceeds of a
specific revenue source. Some revenue bonds are payable solely or partly from
funds which are subject to annual appropriations by a State's legislature and
the availability of monies for such payments. Municipal notes include bond
anticipation, tax anticipation and revenue anticipation notes. Bond, tax and
revenue anticipation notes are short-term obligations that will be retired
with the proceeds of an anticipated bond issue, tax revenue or facility
revenue, respectively. Under normal market conditions, a Portfolio will invest
at least 65% of its total assets in obligations issued by its respective State
or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax (the "AMT") for individual investors. As
at August 31, 1996, the Portfolios had invested in such obligations as follows
(as a percentage of net assets): Alabama Portfolio (17.2%); Arkansas Portfolio
(20.9%); Georgia Portfolio (16.9%); Kentucky Portfolio (24.3%); Louisiana
Portfolio (36.8%); Maryland Portfolio (17.7%); Missouri Portfolio (18.8%);
North Carolina Portfolio (16.3%); Oregon Portfolio (21.5%); South Carolina
Portfolio (26.0%); Tennessee Portfolio (18.6%); and Virginia Portfolio
(16.9%). Distributions to corporate investors of certain interest income may
also be subject to the AMT. The Funds may not be suitable for investors
subject to the AMT.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely effected by economic developments (including insolvency
of an issuer) and by legislation and other governmental activities in that
State. Municipal obligations that rely on an annual appropriation of funds by
a State's legislature for payment are also subject to the risk that the
legislature will not appropriate the necessary amounts or take other action
needed to permit the issuer of such obligations to make required payments. To
the extent that a Portfolio's assets are concentrated in municipal obligations
of issuers of a single State, that Portfolio may be subject to an increased
risk of loss. Each Portfolio may also invest in obligations issued by the
governments of Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix
to this Prospectus for a description of some of the economic and other factors
relating to the States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities;
obligations dependent on annual appropriations by a State's legislature for
payment; obligations of State and local housing finance authorities, municipal
utilities systems or public housing authorities; obligations of hospitals or
life care facilities; or industrial development or pollution control bonds
issued for electric utility systems, steel companies, paper companies or other
purposes. This may make a Portfolio more susceptible to adverse economic,
political, or regulatory occurrences affecting a particular category of
issuer. For example, health care-related issuers are susceptible to medicaid
reimbursement policies, and national and State health care legislation. As a
Portfolio's concentration increases, so does the potential for fluctuation in
the value of the corresponding Fund's shares.
NON-DIVERSIFIED STATUS. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5%
(but not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio is more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive
their value from another instrument, security or index. In addition, each
Portfolio may temporarily borrow up to 5% of the value of its total assets to
satisfy redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the
securities may fluctuate prior to delivery and upon delivery the securities
may be worth more or less than a Portfolio agreed to pay for them. Each
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in
inverse floaters may involve greater risk than an investment in a fixed rate
bond. Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the value
of an inverse floater is generally more volatile than that of a fixed rate
bond. Inverse floaters have interest rate adjustment formulas which generally
reduce or, in the extreme, eliminate the interest paid to a Portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. These securities tend to underperform the market for
fixed rate bonds in a rising interest rate environment, but tend to outperform
the market for fixed rate bonds when interest rates decline. Shifts in long-
term interest rates may, however, alter this tendency. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity.
These securities usually permit the investor to convert the floating rate to a
fixed rate (normally adjusted downward), and this optional conversion feature
may provide a partial hedge against rising rates if exercised at an opportune
time. Inverse floaters are leveraged because they provide two or more dollars
of bond market exposure for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities
(such as U.S. Government securities and municipal obligations) and securities
indices (such as the Municipal Bond Index traded on the Chicago Board of
Trade). Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's current yield.
Insurance generally will be obtained from insurers with a claims-paying
ability rated Aaa by Moody's or AAA by S&P or Fitch. The insurance does not
guarantee the market value of the insured obligations or the net asset value
of a Fund's shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations
may have some quality and protective characteristics, these characteristics
can be expected to be offset or outweighed by uncertainties or major risk
exposures to adverse conditions. Lower rated and comparable unrated municipal
obligations are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to greater price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated municipal obligations are also
more likely to react to real or perceived developments affecting market and
credit risk than are more highly rated obligations, which react primarily to
movements in the general level of interest rates. The Investment Adviser seeks
to minimize the risks of investing in below investment grade securities
through professional investment analysis and attention to current developments
in interest rates and economic conditions. When a Portfolio invests in lower
rated or unrated municipal obligations, the achievement of the Portfolio's
goals is more dependent on the Investment Adviser's ability than would be the
case if the Portfolio were investing in municipal obligations in the higher
rating categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by a Portfolio which
are rated below investment grade but which, subsequent to the assignment of
such rating, are backed by escrow accounts containing U.S. Government
obligations may be determined by the Investment Adviser to be of investment
grade quality for purposes of the Portfolio's investment policies. A Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition, if such retention is considered desirable by the Investment
Adviser; provided, however, that holdings of obligations rated below Baa or
BBB will be less than 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary
in order to comply with the Portfolio's credit quality limitations.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline,
the value of securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Changes in the credit quality of the
issuers of municipal obligations held by a Portfolio will affect the principal
value of (and possibly the income earned on) such obligations. In addition,
the values of such securities are affected by changes in general economic
conditions and business conditions affecting the specific industries of their
issuers. Changes by recognized rating services in their ratings of a security
and in the ability of the issuer to make payments of principal and interest
may also affect the value of a Portfolio's investments. The amount of
information about the financial condition of an issuer of municipal
obligations may not be as extensive as that made available by corporations
whose securities are publicly traded. An investment in shares of a Fund will
not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other
accounts managed by the Investment Adviser and its affiliates, holds a major
portion or all of such securities. Under adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio may be unable to dispose of
these municipal obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer redeems securities held by
the Portfolio during a time of declining interest rates, the Portfolio may not
be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals during the
life of the security. Each Portfolio is required to accrue income from zero-
coupon bonds on a current basis, even though it does not receive that income
currently in cash and each Fund is required to distribute its share of the
Portfolio's income for each taxable year. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such
leases is often subject to the appropriation by the appropriate legislative
body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES
AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO
WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN
THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
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EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS 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 (such as the Funds). Each share
represents an equal proportionate beneficial interest in a Fund. When issued
and outstanding, each Fund's shares are fully paid and nonassessable by the
Trust and redeemable as described under "How to Redeem Fund Shares."
Shareholders are entitled to one vote for each full share held. Fractional
shares may be voted proportionately. Shares have no preemptive or conversion
rights and are freely transferable. In the event of the liquidation of a Fund,
shareholders of that Fund are entitled to share pro rata in the net assets
available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
Portfolio (e.g., other U.S. and foreign investment companies, and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Portfolio itself is unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
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, affords the potential for economies of scale for each Fund
(at least when the assets of its corresponding Portfolio exceed $500 million)
and may over time result in lower expenses for a fund.
In addition to selling an interest to its corresponding Fund, a Portfolio may
sell interests to other affiliated and non-affiliated mutual funds or
institutional investors. Such investors will invest in a Portfolio on the same
terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not
required to sell their shares at the same public offering price as the
corresponding Fund due to variations in sales commissions and other operating
expenses. Therefore, investors in a Fund should be aware that these
differences may result in differences in returns experienced by investors in
the various funds that invest in its corresponding Portfolio. Such differences
in returns are also present in other mutual fund structures, including funds
that have multiple classes of shares. Information regarding other pooled
investment entities or funds which invest in a Portfolio may be obtained by
contacting the Principal Underwriter, 24 Federal Street, Boston, MA 02110,
(617) 482-8260.
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.
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. In the event a Fund withdraws
all of its assets from its corresponding Portfolio, or the Board of Trustees
of the Trust determines that the investment objective of such Portfolio is no
longer consistent with the investment objective of the Fund, such Trustees
would consider what action might be taken, including investing the assets of
such Fund in another pooled investment entity or retaining an investment
adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets from its corresponding Portfolio.
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. 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. Under its investment advisory agreement with a Portfolio, BMR
receives a monthly advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
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1 up to $20 million .......................... 0.100% 1.00%
2 $20 million but less than $40 million ...... 0.200% 2.00%
3 $40 million but less than $500 million ..... 0.300% 3.00%
4 $500 million but less than $1 billion ...... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...... 0.225% 2.25%
7 $2 billion but less than $3 billion ........ 0.200% 2.00%
8 $3 billion and over ........................ 0.175% 1.75%
Each Portfolio paid advisory fees for the fiscal year ended August 31, 1996
equivalent to the annualized percentage of average daily net assets stated
below.
NET ASSETS AS OF
PORTFOLIO AUGUST 31, 1996 ADVISORY FEE
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Alabama ................................... $108,543,550 0.40%
Arkansas .................................. 74,103,217 0.36%
Georgia ................................... 108,974,295 0.40%
Kentucky .................................. 133,017,453 0.41%
Louisiana ................................. 35,048,671 0.12%(1)
Maryland .................................. 110,588,345 0.40%
Missouri .................................. 85,162,363 0.37%
North Carolina ............................ 187,044,385 0.43%
Oregon .................................... 129,758,655 0.41%
South Carolina ............................ 58,318,147 0.33%
Tennessee ................................. 56,065,353 0.31%
Virginia .................................. 177,644,321 0.43%
(1) Absent a fee reduction, the Louisiana Portfolio would have paid BMR
advisory fees equivalent to 0.23% of average daily net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
OVER $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton Vance
Corp., a publicly-held holding company which through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities. The Principal Underwriter is a wholly-owned subsidiary
of Eaton Vance.
Timothy T. Browse has acted as the portfolio manager of the Alabama, Arkansas
and Maryland Portfolios since they commenced operations and the Virginia
Portfolio since November 1, 1996. He has been a Vice President of Eaton Vance
and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior to
joining Eaton Vance, he was a municipal bond trader at Fidelity Management &
Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Missouri and
Tennessee Portfolios since they commenced operations and the Georgia Portfolio
since January 1, 1996. Ms. Clemson has been a Vice President of Eaton Vance
and BMR since 1993 and an employee of Eaton Vance since 1985.
Thomas M. Metzold has acted as the portfolio manager of the Oregon Portfolio
since November 1, 1996. He has been a Vice President of Eaton Vance since 1991
and of BMR since 1992, and an employee of Eaton Vance since 1987.
Thomas J. Fetter has acted as the portfolio manager of the South Carolina
Portfolio since January 1, 1996. Mr. Fetter has been a Vice President of Eaton
Vance since 1987 and of BMR since 1992.
Nicole Anderes has acted as the portfolio manager of the Kentucky Portfolio
since November 1, 1996. She joined BMR and Eaton Vance 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 at Municipal Research at Roosevelt & Cross (1987-1992).
Robert B. MacIntosh has acted as the portfolio manager of the North Carolina
and Louisiana Portfolios since January 1, 1996. 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 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. Each Fund, each Portfolio and BMR have adopted Codes of
Ethics relating to personal securities transactions. The Codes permit Eaton
Vance personnel to invest in securities (including securities that may be
purchased or held by a Portfolio) for their own accounts, subject to certain
pre-clearance, reporting and other restrictions and procedures contained in such
Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by the Principal Underwriter under the
distribution agreement.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE
"1940 ACT"). Rule 12b-1 permits a mutual fund, such as a Fund, to finance
distribution activities and bear expenses associated with the distribution of
its shares provided that any payments made by the fund are made pursuant to a
written plan adopted in accordance with the Rule. Each Plan is subject to, and
complies with, the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). Each Fund's Plan is described further in the
Statement of Additional Information, and the following is a description of the
salient features of the Plans. Each Fund's Plan provides that the Fund, subject
to the NASD Rule, will pay sales commissions and distribution fees to the
Principal Underwriter only after and as a result of the sale of shares of the
Fund. On each sale of Fund shares (excluding reinvestment of distributions) a
Fund will pay the Principal Underwriter amounts representing (i) sales
commissions equal to 5% of the amount received by a Fund for each share sold and
(ii) distribution fees calculated by applying the rate of 1% over the prime rate
then reported in The Wall Street Journal to the outstanding balance of Uncovered
Distribution Charges (as described below) of the Principal Underwriter. The
Principal Underwriter currently expects to pay sales commissions (except on
exchange transactions and reinvestments) to a financial services firm (an
"Authorized Firm") at the time of sale equal to 4% of the purchase price of the
shares sold by such Firm. The Principal Underwriter will use its own funds
(which may be borrowed from banks) to pay such commissions. Because the payment
of the sales commissions and distribution fees to the Principal Underwriter is
subject to the NASD Rule described below, it will take the Principal Underwriter
a number of years to recoup the sales commissions paid by it to Authorized Firms
from the payments received by it from a Fund pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE FUND'S
AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, a Fund accrues
daily an amount at the rate of 1/365 of .75% of the Fund's net assets, and pays
such accrued amounts monthly to the Principal Underwriter. Each Plan requires
such accruals to be automatically discontinued during any period in which there
are no outstanding Uncovered Distribution Charges under the Plan. Uncovered
Distribution Charges are calculated daily and, briefly, are equivalent to all
unpaid sales commissions and distribution fees to which the Principal
Underwriter is entitled under a Plan less all contingent deferred sales charges
theretofore paid to the Principal Underwriter. The Eaton Vance organization may
be considered to have realized a profit under a Fund's Plan if at any point in
time the aggregate amounts of all payments received by the Principal Underwriter
from the Fund pursuant to the Plan, including any contingent deferred sales
charges, have exceeded the total expenses theretofore incurred by such
organization in distributing shares of the Fund. Total expenses for this purpose
will include an allocable portion of the overhead costs of such organization and
its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would result
in the incurrence and payment of increased distribution fees under the Plan.
During the fiscal year ended August 31, 1996, each Fund paid sales commissions
under its Plan equivalent to .75% of such Fund's average daily net assets. As
at August 31, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter on such day calculated under each Fund's Plan amounted
to approximately $3,631,000 (equivalent to 3.6% of net assets on such day) in
the case of the Alabama Fund, $2,777,000 (equivalent to 3.8% of net assets on
such day) in the case of the Arkansas Fund, $3,759,000 (equivalent to 3.5% of
net assets on such day) in the case of the Georgia Fund, $4,511,000
(equivalent to 3.4% of net assets on such day) in the case of the Kentucky
Fund, $1,362,000 (equivalent to 4.1% of net assets on such day) in the case of
the Louisiana Fund, $3,946,000 (equivalent to 3.6% of net assets on such day)
in the case of the Maryland Fund, $2,856,000 (equivalent to 3.5% of net assets
on such day) in the case of the Missouri Fund, $5,905,000 (equivalent to 3.5%
of net assets on such day) in the case of the North Carolina Fund, $4,465,000
(equivalent to 3.5% of net assets on such day) in the case of the Oregon Fund,
$2,245,000 (equivalent to 3.9% of net assets on such day) in the case of the
South Carolina Fund, $2,037,000 (equivalent to 3.7% of net assets on such day)
in the case of the Tennessee Fund and $5,877,000 (equivalent to 3.3% of net
assets on such day) in the case of the Virginia Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have initially implemented this provision of each Fund's
Plan by authorizing the Fund to make quarterly payments of service fees to the
Principal Underwriter and Authorized Firms in amounts not expected to exceed
.20% of the Fund's average daily net assets for each fiscal year based on the
value of Fund shares sold by such persons and remaining outstanding for at least
twelve months. However, each Fund's Plan authorizes the Trustees of the Trust on
behalf of the Fund to increase payments to the Principal Underwriter, Authorized
Firms and other persons from time to time without further action by shareholders
of the Fund, provided that the aggregate amount of payments made to such persons
under the Plan in any fiscal year of the Fund does not exceed .25% of the Fund's
average daily net assets. As permitted by the NASD Rule, such payments are made
for personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales commissions and distribution fees
payable by a Fund to the Principal Underwriter, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of the Principal Underwriter. For the fiscal year ended August 31, 1996,
each Fund made service fee payments (as an annualized percentage of average
daily net assets) as follows: Alabama Fund (0.18%); Arkansas Fund (0.17%);
Georgia Fund (0.17%); Kentucky Fund (0.18%); Louisiana Fund (0.17%); Maryland
Fund (0.16%); Missouri Fund (0.17%); North Carolina Fund (0.18%); Oregon Fund
(0.17%); South Carolina Fund (0.16%); Tennessee Fund (0.16%); and Virginia Fund
(0.17%).
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell Fund shares and/or shares of other funds distributed by
the Principal Underwriter. In some instances, such additional incentives may be
offered only to certain Authorized Firms whose representatives sell or are
expected to sell significant amounts of shares. In addition, the Principal
Underwriter may from time to time increase or decrease the sales commissions
payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant
factors, including without limitation the size of a Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares, and the amount of Uncovered Distribution Charges of the Principal
Underwriter. Each Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, no Fund is contractually obligated to
continue its Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. An Authorized Firm may charge its customers a fee in connection
with transactions executed by that Firm. A Fund may suspend the offering of
shares at any time and may refuse an order for the purchase of shares. Shares
of each Fund are offered for sale only in States where such shares may be
legally sold.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at their net asset value as determined above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold on the day of their receipt or as soon
thereafter as possible. The number of Fund shares to be issued in exchange for
securities will be the aggregate proceeds from the sale of such securities,
divided by the applicable net asset value per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities. 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 IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based
on the net asset value per Fund share next computed after a redemption request
is received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. 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 (the "Commission") and acceptable to the Transfer Agent.
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.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: 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 the Principal Underwriter, as
the Funds' agent, receives the order. It is the Authorized Firm's responsibility
to transmit promptly repurchase orders to the Principal Underwriter. Throughout
this Prospectus, the word "redemption" is generally meant to include a
repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, 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.
If shares were recently purchased, the proceeds of redemption 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 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 $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make an additional
purchase. 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
("CDSC"). This CDSC 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 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 CDSC. That is, each
redemption will be assumed to have been made first from the exempt amounts
referred to in clauses (a), (b) and (c) above, and second through liquidation of
those shares in the account referred to in clause (c) on a first-in-first-out
basis. As described under "Distribution Plans", the CDSC will be paid to the
Principal Underwriter or a Fund. Any CDSC which is required to be imposed on
share redemptions will be made in accordance with the following schedule:
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
----------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
In calculating the CDSC upon the redemption of shares acquired in an exchange
of shares of a fund currently listed under "The Eaton Vance Exchange
Privilege," the CDSC schedule applicable to the shares at the time of purchase
will apply and the purchase of shares acquired in the exchange is deemed to
have occurred at the time of the original purchase of the exchanged shares.
No CDSC will be imposed on shares of a Fund which have been sold to Eaton
Vance or its affiliates, or to their respective employees or clients. The CDSC
applicable to shares will be waived for shares redeemed (1) pursuant to a
Withdrawal Plan (see "Eaton Vance Shareholder Services"), (2) as part of a
required distribution from a tax-sheltered retirement plan or (3) following
the death of all beneficial owners of such shares, provided the redemption is
requested within one year of death (a death certificate and other applicable
documents may be required). In addition, shares acquired as a result of a
merger or liquidation of another Eaton Vance sponsored fund will have a CDSC
imposed at the same rate as would have been imposed in the prior fund.
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CDSC. 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 CDSC. IF THE INVESTOR SHOULD REDEEM
$3,000 OF SHARES, A CHARGE WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION.
THE RATE WOULD BE 5% BECAUSE IT WAS IN THE SECOND YEAR AFTER THE PURCHASE
WAS MADE AND THE CHARGE WOULD BE $50.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing federal and State tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE TRANSFER AGENT
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 Transfer
Agent.
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 Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of
the shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the
Funds' dividend disbursing agent, First Data Investor Services Group, P.O. Box
5123, Westborough, MA 01581-5123. 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.
THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of each Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (including Class I shares of
any EV Marathon Limited Maturity Fund) or Eaton Vance Money Market Fund, which
are subject to a CDSC. Shares of the Fund may also be exchanged for shares of
Eaton Vance Prime Rate Reserves, which are subject to an early withdrawal
charge, and shares of a money market fund sponsored by an Authorized Firm and
approved by a Principal Underwriter (an "Authorized Firm fund"). Any such
exchange will be made on the basis of the net asset value per share of each
fund at the time of the exchange. 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 Transfer Agent 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 Transfer Agent 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 CDSC is imposed on exchanges. For purposes of calculating the CDSC upon
redemption of shares acquired in an exchange, the CDSC 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, except that time during which
shares are held in an Authorized Firm fund will not be credited toward
completion of the CDSC period. For the CDSC schedule applicable to the Eaton
Vance Marathon Group of Funds (except EV Marathon Strategic Income Fund, Eaton
Vance Prime Rate Reserves and Class I shares of any EV Marathon Limited
Maturity Fund), see "How to Redeem Fund Shares." The CDSC or early withdrawal
charge schedule applicable to EV Marathon Strategic Income Fund, Eaton Vance
Prime Rate Reserves and Class I shares of any EV Marathon Limited Maturity
Fund is 3%, 2.5%, 2% or 1% in the event of a redemption occurring in the
first, second, third or fourth year, respectively, after the original share
purchase.
Shares of the funds listed above may be exchanged for Fund shares on the basis
of the net asset value per share of each fund at the time of exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by the Transfer Agent provided the investor
has not disclaimed in writing the use of the privilege. To effect such
exchanges, call the Transfer Agent at 800-262-1122, 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 Transfer Agent will be responsible for the authenticity of exchange
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An
exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund being purchased may be mailed directly to the Transfer Agent, First Data
Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 at any time
- -- whether or not dividends are reinvested. The name of the shareholder, the
Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments
of $50 or more may be made automatically each month or quarter from a
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a CDSC. 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 CDSC paid on the redeemed or repurchased
shares, any portion or all of the repurchase or redemption proceeds (plus that
amount necessary to acquire a fractional share to round off the purchase to
the nearest full share) in shares of a Fund, provided that the reinvestment is
effected within 60 days after such repurchase or redemption and the privilege
has not been used more than once in the prior 12 months. Shares are sold to a
reinvesting shareholder at the next determined net asset value following
timely receipt of a written purchase order by the Principal Underwriter or by
a Fund (or by the Fund's Transfer Agent). To the extent that any shares of a
Fund are sold at a loss and the proceeds are reinvested in shares of a Fund
(or other shares of the Fund are acquired) within the period beginning 30 days
before and ending 30 days after the date of the redemption some or all of the
loss generally will not be allowed as a tax deduction. Shareholders should
consult their tax advisers concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO (LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES) WILL
BE DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME
OF DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the fifteenth day of each month
or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may
be considered taxable income if the Fund has taxable income during the
calendar year. Shareholders reinvesting the monthly distribution should treat
the amount of the entire distribution as the tax cost basis of the additional
shares acquired by reason of such reinvestment. Daily distribution crediting
will commence on the day that collected funds for the purchase of Fund shares
are available at the Transfer Agent. Shareholders of a Fund will receive
timely Federal income tax information as to the tax-exempt or taxable status
of all distributions made by the Fund during the calendar year. A Fund's net
realized capital gains, if any, consist of the net realized capital gains
allocated to the Fund by its corresponding Portfolio for tax purposes, after
taking into account any available capital loss carryovers; a Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended, (the "Code") and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
As a regulated investment company under the Code, each Fund does not pay
federal income or excise taxes to the extent that it distributes to
shareholders its net investment income and net realized capital gains in
accordance with the timing requirements imposed by the Code. As partnerships
under the Code, the Portfolios do not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. If shares are
purchased shortly before the record date of such a distribution, the
shareholder will pay the full price for the shares and then receive some
portion of the price back as a taxable distribution. 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 distributions 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 with their tax advisers concerning the
applicability of State, local and other taxes to an investment in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. Each Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share (net asset value) of the Fund on the last day
of the period and annualizing the resulting figure. A taxable-equivalent yield
is computed by using the tax-exempt yield figure and dividing by 1 minus the
tax rate. Each Fund's average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price (net asset value) for specified periods,
assuming reinvestment of all distributions. The average annual total return
calculation assumes a complete redemption of the investment and the deduction
of any applicable CDSC at the end of the period. Each Fund may publish annual
and cumulative total return figures from time to time.
Each Fund may also publish total return figures which do not take into account
any CDSC which may be imposed upon redemptions at the end of the specified
period. Any performance figure which does not take into account the CDSC would
be reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a Fund's yield or total return for any
prior period should not be considered a representation of what an investment
may earn or what the Fund's yield or total return may be in any future period.
If the expenses of a Fund or its corresponding Portfolio are allocated to by
Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations of issues in its corresponding State, it is susceptible to
factors affecting that State. Each Portfolio may also invest up to 5% of its
net assets in obligations issued by the governments of Guam and the U.S.
Virgin Islands and up to 35% of its assets in obligations issued by the
government of Puerto Rico. Set forth below is certain economic and tax
information concerning the States in which the Portfolios invest and Puerto
Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there
can be no assurance that particular bond issues may not be adversely affected
by changes in economic, political or other conditions. Unless stated
otherwise, the ratings indicated are for obligations of the State. A State's
political subdivisions may have different ratings which are unrelated to the
ratings assigned to State obligations.
ALABAMA. Since the early 1980's, modernization of existing facilities and an
increase in direct foreign investments in the State have made the State's
manufacturing sector more competitive in domestic and international markets.
Although it remains the largest employment sector, the State economy has
become less dependent on manufacturing (pulp and paper, mining and chemicals).
Strong growth in the service and wholesale/retail trade sectors combined with
recent weakness in the manufacturing sector has enabled the economy to become
more diverse. However, its reliance on the manufacturing sector remains
significantly greater than the national average. In the past several years,
the loss of manufacturing jobs has been primarily as a result of weakness in
the durable goods sector. Overall, non-agricultural employment has steadily
grown during the past five years. The seasonally adjusted unemployment rate
for August, 1996, was 4.5%, compared to the national rate of 5.1%.
Alabama general obligations are currently rated AA, Aa and AA, by S&P, Moody's
and Fitch, respectively.
ALABAMA TAXES. In the opinion of Bradley, Arant, Rose & White, special Alabama
tax counsel to the Alabama Fund, under existing Alabama law, as long as the
Alabama Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Alabama Fund is invested in the Alabama Portfolio, and
provided that the Alabama Portfolio is invested in obligations the interest on
which would be exempt from Alabama personal income taxes if held directly by
an individual shareholder (such as obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions
of the United States), and further provided that the Alabama Portfolio is
characterized as a partnership for Federal income tax purposes, dividends
received by shareholders from the Alabama Fund that represent interest
received by the Alabama Portfolio on such obligations will be exempt from
Alabama personal income taxes. To the extent that distributions by the Alabama
Fund are derived from long-term or short-term capital gains on such
obligations, or from dividends or capital gains on other types of obligations,
such distributions will not be exempt from Alabama personal income tax.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Alabama Fund by an Alabama resident will be taken into account for
Alabama personal income tax purposes.
ARKANSAS. Arkansas has a relatively diverse economy. The economy consists
primarily of manufacturing (25%) involving more sophisticated processes and
products such as electrical machinery, transportation equipment, fabricated
metals and electronics. The health services, wholesale/retail trade and
service sectors have also grown in recent years. The diversification of
economic interests has lessened the State's cyclical sensitivity to the impact
of any single sector. Agriculture, however, continues to be an important
component of the State's economy. In addition, the State has significant
natural gas and oil producing interests, as well as mining activities. The
seasonally adjusted unemployment rate for August, 1996, was 5.2%, compared to
a national rate of 5.1%. State law prohibits deficit spending. In 1995, the
General Fund had an ending balance of $1.2 billion, with revenues over
expenditures of $195 million.
Arkansas general obligation bonds are rated Aa and AA by Moody's and S&P.
Fitch does not currently rate Arkansas general obligations.
ARKANSAS TAXES. In the opinion of special Arkansas tax counsel, under
Arkansas law, as long as the Arkansas Fund qualifies as a separate "regulated
investment company" under the Code, and provided the Arkansas Fund is invested
in obligations the interest on which would be exempt from Arkansas personal
income taxes if held directly by an individual shareholder (such as
obligations of Arkansas or its political subdivisions, of the United States or
of certain territories or possessions of the United States), dividends
received from the Arkansas Fund that represent interest received by the
Arkansas Fund on such obligations will be exempt from Arkansas personal income
taxes. To the extent that distributions by the Arkansas Fund are derived from
long-term or short-term capital gains on such obligations, or from dividends
or capital gains on other types of obligations, such distributions will not be
exempt from Arkansas personal income tax. The opinion addresses the tax
consequences when the Arkansas Fund invests directly in these obligations. The
application of these consequences to the Arkansas Fund when investing in
interests of another registered investment company was the subject of a
favorable opinion from Revenue Counsel for the Arkansas Department of Finance
and Administration obtained when the Portfolio commenced operations.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Arkansas Fund by an Arkansas resident will be taken into account for
Arkansas personal income tax purposes.
GEORGIA. Georgia has a generally sound, well-diversified economy, which has
performed relatively well during recent years. The unemployment rate of the
civilian labor force in the State as of August 1996 was 4.4% compared to 5.1%
for the nation. Actual revenues of the State for fiscal year 1995 increased
10.5% over revenue collections for the previous fiscal year. Total projected
revenues for fiscal year 1996 are approximately $10.7 million, a 7.2% increase
over the total projected revenues for fiscal year 1995. The State's economy
received a boost from economic activity associated with the 1996 Summer
Olympics. The fiscal 1996 budget includes approximately $76,663,963 to help
Georgians recover from the 1994 summer flooding and tropical storm disasters
which is not likely to affect the market value of Georgia obligations or the
ability of the State or its instrumentalities to pay interest and repay
principal on Georgia obligations in a timely manner.
Georgia general obligations are rated "AA+," "Aaa" and "AAA" by S&P, Moody's
and Fitch, respectively. Fitch views the rating as stable and S&P has a
positive outlook.
GEORGIA TAXES. In the opinion of Powell, Goldstein, Frazer & Murphy, special
tax counsel to the Georgia Fund, under existing law, shareholders who are
otherwise subject to the Georgia personal or corporate income tax will not be
subject to Georgia income tax on distributions with respect to shares of the
Georgia Fund to the extent such distributions represent "exempt-interest
dividends" for Federal income tax purposes that are attributable to interest
on obligations issued by or on behalf of the State of Georgia or its political
subdivisions, and by the governments of Puerto Rico, the U.S. Virgin Islands
and Guam to the extent that such obligations are exempt from State income tax
pursuant to Federal law. Distributions, if any, derived from capital gain or
other sources generally will be taxable to shareholders of the Georgia Fund
for Georgia income tax purposes. Shareholders who are subject to the Georgia
corporate net worth tax, a franchise tax that is based on net worth, will be
subject to such tax with respect to ownership of shares of the Georgia Fund
and distributions with respect thereto.
The Georgia Legislature repealed the Georgia Intangible Personal Property Tax
on March 21, 1996, effective retroactive to January 1, 1996, subject to
approval by Georgia's voters. On November 5, 1996, Georgia's voters ratified
the legislation repealing the Georgia Intangible personal Property Tax. Thus,
shares of the Georgia Fund are no longer subject to Georgia Intangible Personal
Property Taxation effective for taxable years beginning on or after January 1,
1996.
KENTUCKY. Calendar year 1995 marked the third consecutive year that Kentucky
has outpaced the nation in terms of per capita income growth and lower
unemployment rates. Kentucky's per capita income growth rate for 1995 was 5.2%
versus the U.S. growth rate of 5.0%. As of August, 1996, Kentucky's
unemployment rate was 4.5% compared to the national average of 5.1%. During
1995, the manufacturing sector gained 8,600 jobs or 2.8%. The trade and
service sectors recorded employment gains of 16,300 and 13,600, respectively.
The State relies on manufacturing and mining for a greater portion of its
employment than does the rest of the nation. General Electric, Fruit of the
Loom and Ford Motor are the three largest manufacturing employers. The
automobile industry has become an important component of the economy. Toyota
and General Motors have assembly facilities in the State.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last four years. State General Fund Revenue grew by 3.5% in fiscal
year 1996 to a total of $5.34 billion. To avoid the need for state budget cuts
in the event revenues do not meet expectations, a Budget Reserve Trust Fund
was established with a $90 million deposit in fiscal year 1994 and has been
increased by additional deposits of $10 million in fiscal year 1995 and $100
million in fiscal year 1996 to a current balance of $200 million.
Because the Kentucky Constitution requires a vote of a majority of the
electorate to approve the issuance of State general obligation indebtedness,
none of the outstanding indebtedness of the Commonwealth of Kentucky is
general obligation indebtedness but instead is either debt payable only from
revenues produced by the particular project or lease revenue indebtedness
subject to legislative appropriation for the payment of debt service during
each fiscal biennium of the Commonwealth.
As of the date of this Prospectus the State's appropriation-backed debt is
rated A+, A and A+, by S&P, Moody's and Fitch, respectively.
KENTUCKY TAXES. In the opinion of Wyatt, Tarrant & Combs, special Kentucky tax
counsel to the Kentucky Fund, shareholders of the Kentucky Fund who otherwise
are subject to individual or corporate income taxes of the Commonwealth of
Kentucky will not be subject to such taxes on distributions with respect to
their shares in the Kentucky Fund to the extent that such distributions are
attributable to interest on obligations of the Commonwealth of Kentucky or its
political subdivisions, obligations of the United States, or obligations of
the government of Puerto Rico, the U.S. Virgin Islands or Guam. To the extent
that distributions from the Kentucky Fund are included in a corporate
shareholder's surplus, they will be subject to the Kentucky license
(franchise) tax that is based on net worth. To the extent that the Portfolio's
holdings consist of obligations of the Commonwealth of Kentucky or its
political subdivisions and the balance are obligations of the United States,
shares in the Kentucky Fund will be exempt from the Kentucky Intangibles Tax.
Shareholders will be required to include the entire amount of capital gain
dividends in income to the same extent for state income tax purposes as for
federal income tax purposes.
Many local governments in Kentucky, including Louisville, Jefferson County,
Lexington-Fayette Urban County, Bowling Green and Covington, impose taxes on
the net profits of businesses operating (in any form, including sole
proprietorships) within the local jurisdiction. Such taxes should not be
imposed on income derived from an investment in the Kentucky Fund. However,
because of differences in the provisions of the local ordinances, it is not
possible to address their specific impact.
LOUISIANA. The State has experienced operating budget deficits in three of the
last seven fiscal years. Since 1988, the gap between General Fund expenditures
and recurring revenues has widened for a variety of reasons: new expenditures
have been phased in; new tax exemptions have been implemented; the federal
government has issued costly mandates, most significantly in the Medicaid
program; and revenues once available to the General Fund have in recent years
been dedicated for specific purposes. Furthermore, the State's tax base (which
is comprised in part of mineral revenues and volume-based taxes, such as those
on tobacco, beer, and liquor) is inherently inelastic, i.e., its nominal
growth rate does not match or exceed the growth rate of the economy.
During 1994, $30.6 million of the surplus funds were utilized to cover known
shortfalls in current year program operations. The State ended the fiscal
period 1993-94 with an operating surplus of $129 million. This amount together
with the prior year fund balance of $101 million and reserve changes leaves an
unreserved-undesignated General Fund fund balance of $212.9 million. The new
administration needs to address several budgetary issues in order to resolve
its fiscal challenges. It is uncertain how these issues will be resolved or
how it will impact the creditworthiness of the State and its outstanding and
related debt. For fiscal 1996, the State expects to finish with a balanced
budget despite these budgetary issues including concerns relating to its
Medicaid program.
As of the date of this Prospectus, general obligations of Louisiana are rated
A- (with a negative outlook) and Baa1 by S&P and Moody's, respectively.
LOUISIANA TAXES. In the opinion of Jones, Walker, Waechter, Poitevent, Carrere
& Denegre, L.L.P., special Louisiana tax counsel to the Louisiana Fund, under
existing Louisiana law as long as: (i) the Louisiana Fund qualifies as a
separate "regulated investment company" under the Code; (ii) the Louisiana
Portfolio will be treated as a partnership for federal and state tax purposes;
and (iii) the Louisiana Fund receives income from obligations, the interest on
which would be exempt from Louisiana individual and corporate income taxes if
held directly by an individual shareholder (such as obligations of Louisiana
or its political subdivisions, of the United States or of certain territories
or possessions of the United States), the dividends received from the
Louisiana Fund that represent interest received by the Louisiana Fund on such
obligations will be exempt from Louisiana individual and corporate income
taxes. To the extent that distributions by the Louisiana Fund are derived from
long-term or short-term capital gains on such obligations, or from dividends
or capital gains on other types of obligations, such distributions will not be
exempt from Louisiana individual and corporate income taxes.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Louisiana Fund by a Louisiana resident will be taken into account for
Louisiana individual and corporate income tax purposes. Distributions from and
investments in the Louisiana Fund by corporate shareholders who are otherwise
subject to the Louisiana corporate franchise tax will be included in the
capital of such corporations for Louisiana franchise tax purposes.
MARYLAND. Maryland has a diverse economy with government, services and mining,
and manufacturing and trade each accounting for approximately 20%, 31% and 32%
of employment, respectively. In recent years financial operations of the State
have concluded in ending surpluses, although in the early 1990s various cost
containment and tax revenue measures were required. State revenues are largely
dependent on income and sales and use taxes and, relatedly, on general levels
of employment, personal income growth and consumer spending. The national
slowdown, beginning in 1990, impacted the State with total employment
declining slightly in the early 1990s but recovering commencing in 1992.
Unemployment in Maryland for August 1996 was 4.7% versus the national rate of
5.1%.
Generally, Maryland has been among the most heavily indebted of the states. In
recent years increases in State general obligation debt have been controlled.
Since 1991, State tax-supported debt service and debt outstanding have been
less than 3.07% of personal income and 6.74% of State revenues, respectively.
Including local government debt, debt service as a percentage of total
revenues has risen from 8.88% in 1991 to 9.67% in 1994. It should be noted
that the creditworthiness of obligations issued by local Maryland issuers and
State revenue obligations may vary considerably from the creditworthiness of
general obligations bonds issued by the State, and that there is no obligation
on the part of the State to make payment on such local obligations in the
event of default.
The State of Maryland's general obligation bonds are rated AAA, Aaa and AAA,
by S&P, Moody's and Fitch, respectively. Both S&P and Fitch have a stable
outlook for the State.
MARYLAND TAXES. In the opinion of Piper & Marbury, L.L.P., special Maryland
tax counsel to the Maryland Fund, so long as the Maryland Fund qualifies to be
taxed as a regulated investment company in the manner set forth in Section 852
(b) of the Code holders of the Maryland Fund who are individuals, estates or
trusts and who are otherwise subject to Maryland State and local individual
income taxes will not be subject to such taxes on Maryland Fund dividends to
the extent that (a) such dividends qualify as exempt-interest dividends of a
regulated investment company under Section 852(b)(5) of the Code, which are
attributable to interest on tax-exempt obligations of the State of Maryland or
its political subdivisions or authorities, or obligations issued by the
government of Puerto Rico, U.S. Virgin Islands or Guam or their authorities
("Maryland tax-exempt obligations"), (b) such dividends are attributable to
interest on obligations of the U.S. Government or obligations issued or
guaranteed by the U.S. Government and its agencies, instrumentalities and
authorities ("U.S. obligations") or (c) such dividends are attributable to
gain realized by the Maryland Fund as a result of the sale or exchange by the
Maryland Portfolio of a bond issued by the State of Maryland or a political
subdivision thereof.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland State and local individual
income taxes.
Maryland presently includes in Maryland taxable income a portion of certain
items of tax preferences as defined in the Code. Interest paid on certain
private activity bonds constitutes such a tax preference. Accordingly, up to
50% of any distributions of the Maryland Fund attributable to such private
activity bonds (other than private activity bonds issued by the State of
Maryland, its political subdivision, or authorities) may not be exempt from
Maryland State and local individual income taxes. The Maryland Portfolio has
no present intention of investing in such securities.
Shareholders of the Maryland Fund that are corporations otherwise subject to
Maryland corporate income tax will not be subject to such tax on Maryland Fund
dividends to the extent that (a) such dividends qualify as exempt-interest
dividends under Section 852(b)(5) of the Code which are attributable to
Maryland tax-exempt obligations, (b) such dividends are attributable to
interest on U.S. obligations or (c) such dividends are attributable to gain
realized by the Maryland Fund as a result of the sale or exchange by the
Maryland Portfolio of a bond issue by the State of Maryland or a political
subdivision thereof.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland corporate income tax.
Shareholders of the Maryland Fund that are financial institutions otherwise
subject to Maryland financial institution franchise taxes will probably be
subject to such taxes on all distributions received from the Maryland Fund
(including exempt-interest dividends).
Interest on indebtedness incurred or continued (directly or indirectly) by a
shareholder of the Maryland Fund to purchase or carry shares of the Maryland
Fund will not be deductible for Maryland State and local individual income tax
purposes or corporate income tax purposes to the extent such interest is
allocable to exempt-interest dividends.
Shares of the Maryland Fund will not be subject to the Maryland personal
property tax.
MISSOURI. The State has a well balanced economy that approximates the national
economy. As a result, the State unemployment rate has typically remained close
to the national average. The civilian unemployment rate for August 1996 was
3.9% as compared to the August 1995 level of 5.0%. In the early 1990s, the
State had operating deficits resulting from lower collections than budgeted
due to the recession. The State's financial operations have been pressured by
the cost associated with the settlement of the desegregation lawsuit involving
the Kansas City and St. Louis school districts. For fiscal 1995, the cost of
the settlement was $315 million, approximately 7% of the General Fund budget.
A recent Supreme Court decision favorable to the State may decrease the level
of State funding required in the future, but the impact of this decision is
uncertain. Economic reversals in either of the Kansas City or St. Louis
metropolitan areas, whose Missouri portions together contain more than half of
the State's population, would have a major impact on the State's overall
economic condition.
An amendment to the State Constitution limits the amount of state taxes which
may be imposed by the General Assembly, as well as the amount of local taxes,
licenses and fees which can be imposed by local governments in any fiscal
year. The details of the amendment are complex and clarification by subsequent
legislation or judicial decision may be necessary.
As of the date of this Prospectus, Missouri's general obligation of debt is
rated AAA, Aaa and AAA, by S&P, Moody's and Fitch, respectively.
MISSOURI TAXES. In the opinion of Bryan Cave, LLP, special Missouri tax
counsel to the Missouri Fund, so long as the Missouri Fund qualifies for
Federal income taxation as a regulated investment company and the Missouri
Portfolio is treated as a partnership for Federal tax purposes, dividends
distributed to individual shareholders of the Missouri Fund will be exempt
from the Missouri personal income tax imposed by Chapter 143 of the Missouri
Revised Statutes to the extent that such dividends qualify as exempt interest
dividends of a regulated investment company under Section 852(b)(5) of the
Code and are derived form interest on obligations of the United States, its
authorities, commissions, instrumentalities, possessions or territories to the
extent exempt from Missouri income taxes under the laws of the United States
(including Puerto Rico, Guam and the U.S. Virgin Islands), or of the State of
Missouri or its political subdivisions. Capital gain dividends, as defined in
Section 852(b)(3) of the Code, distributable by the Missouri Fund to
individual resident shareholders of the Missouri Fund, to the extent
includable in Federal adjusted gross income, will be subject to Missouri
income taxation. Shares in the Missouri Fund are not subject to Missouri
personal property taxes.
The Missouri Fund will notify its shareholders within 60 days after the close
of the year as to the amount of interest dividend from Missouri obligations
which is exempt from Missouri personal income taxation.
NORTH CAROLINA. The current economic profile of the State consists of a
combination of industry, agriculture and tourism. Tobacco production, which
had been the leading source of agricultural income in the State, declined in
1995. Tobacco farming in the State has been and is expected to continue to be
affected by major federal legislation and regulatory measures regarding
tobacco production and marketing and by international competition.
The North Carolina constitution requires that the total expenditures of the
State for the fiscal period covered by each budget not exceed the total of
receipts during the fiscal period and the surplus remaining in the State
Treasury at the beginning of the period. As a result of new taxes, fees and
spending reductions, the State has had a budget surplus since 1994. As of
November, 1996, the amount of uncommitted funds of the State was $586 million.
Fiscal year 1995 ended with a $114 million surplus and a general fund of $1.0
billion. For 1996, revenues were $125 million ahead of budget.
General obligations of the State of North Carolina are rated Aaa, AA and AAA
by Moody's, S&P and Fitch, respectively. Fitch and S&P view the State's credit
trend as "Stable".
NORTH CAROLINA TAXES. In the opinion of Hunton & Williams, special North
Carolina tax counsel to the North Carolina Fund, distributions from the North
Carolina Fund will not be subject to North Carolina individual, trust, or
estate income taxation to the extent that such distributions are either (i)
excluded from federal gross income and represent interest the North Carolina
Fund, either directly or through the North Carolina Portfolio, receives on
obligations of North Carolina or its political subdivisions, nonprofit
educational institutions organized or chartered under the laws of North
Carolina, or Puerto Rico, U.S. Virgin Islands, or Guam or (ii) represent
interest the North Carolina Fund, either directly or through the North
Carolina Portfolio, receives on direct obligations of the United States. These
North Carolina income tax exemptions will be available only if the North
Carolina Fund complies with the requirement of the Code that at least 50% of
the value of its assets at the close of each quarter of its taxable years is
invested, either directly or through the North Carolina Portfolio, in state,
municipal, or other obligations described in (S)103(a) of the Code. The North
Carolina Fund intends to comply with that requirement.
Any capital gains distributed by the North Carolina Fund (except for capital
gain attributable to the sale by the North Carolina Fund or the North Carolina
Portfolio of an obligation the profit from which is exempt by North Carolina
statute) or gains realized by the shareholder from a redemption or sale of
shares of the North Carolina Fund will be subject to North Carolina
individual, trust, or estate income taxation.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the North Carolina Fund to purchase or carry shares of the North Carolina Fund
generally will not be deductible for North Carolina income tax purposes.
The opinion of Hunton & Williams is based on a ruling of the North Carolina
Department of Revenue obtained by Hunton & Williams on behalf of the North
Carolina Fund. That ruling is subject to change.
OREGON. According to the September 1996 Oregon Economic and Revenue Forecast
prepared by the State Department of Administrative Services, Oregon's recent
strong growth is expected to slow over the next year, primarily due to a
softening of the State's housing markets, reductions in timber output and
employment, and weaker national demand for Oregon's manufactured products. A
risk to continued economic expansion is further weakness in the semiconductor
industry resulting from excess capacity in the industry. A strong
international export sector, further nonresidential construction activity and
a steady stream of immigration are expected to lead Oregon to outperform the
national economy for the next 5 years. This combination of forces is likely to
generate growth, although increases in personal income and employment are
expected to be less than they were in 1994. Oregon's seasonally adjusted
unemployment rate for August 1996 was 5.4%, compared to a national rate of
5.1%.
Oregon's general obligation debt is rated AA-, Aa and AA, by S&P, Moody's and
Fitch, respectively.
OREGON TAXES. In the opinion of Stoel Rives LLP, special Oregon tax counsel to
the Oregon Fund, so long as the Oregon Fund qualifies to be taxed as a
separate "regulated investment company" under the Code and the Oregon
Portfolio is treated as a partnership (but not a "publicly traded
partnership") under the Code, and so long as the Oregon Fund is deemed under
the regulated investment company provisions of the Code to own its
proportionate share of the assets of the Oregon Portfolio and to be entitled
to the income of the Oregon Portfolio attributable to that share, under
existing Oregon law holders of the Oregon Fund who are individuals, estates or
trusts will not be subject to Oregon personal income tax on Oregon Fund
dividends to the extent that such dividends (i) qualify as "exempt-interest
dividends" of a regulated investment company under the Code and (ii) are
attributable to interest on tax-exempt obligations of the State of Oregon or
its political subdivisions or authorities, or obligations issued by the
Governments of Puerto Rico, U.S. Virgin Islands or Guam or their authorities
("Oregon tax-exempt obligations").
To the extent that distributions of the Oregon Fund are attributable to
certain sources other than interest on Oregon tax-exempt obligations,
including all short-term and long-term capital gain and interest on tax-exempt
obligations of states other than Oregon and their political subdivisions and
authorities, such distributions will not be exempt from Oregon personal income
tax for individuals, estates or trusts otherwise subject to Oregon personal
income tax. Capital gains or losses realized from a redemption, sale or
exchange of shares of the Oregon Fund will be taken into account for Oregon
personal income tax purposes.
No portion of distributions from the Oregon Fund will be exempt from the
Oregon corporation excise tax, which generally applies to financial
corporations "located within" Oregon and other business corporations "doing or
authorized to do business within" Oregon. Oregon imposes a corporate income
tax on corporations not subject to the Oregon corporation excise tax.
Corporations subject to the Oregon corporation income tax should consult their
tax advisors regarding distributions from the Oregon Fund. Shares of the
Oregon Fund will not be subject to Oregon property tax.
SOUTH CAROLINA. After several years of budget short falls in the early 1990's,
South Carolina has nearly eliminated an accumulated unreserved fund balance
deficit. Fiscal year 1995 ended with a $222 million surplus and early
estimates of 1996 revenues indicate they are ahead of budget. South Carolina
has successfully passed balanced budgets without raising taxes.
Although dominated by the textile industry, South Carolina's economic base has
diversified in recent years as the trade and service sectors developed. With
increased added development in the durable goods manufacturing industries,
South Carolina's economy now resembles more closely that of the United States.
For August, 1996, unemployment in South Carolina was 5.9% compared with the
national rate of 5.1%.
South Carolina general obligations are rated Aaa, AA+ (positive), AAA
(stable), by Moody's, S&P and Fitch, respectively. South Carolina was upgraded
by S&P from AA to AAA in July, 1996.
SOUTH CAROLINA TAXES. In the opinion of Nelson, Mullins, Riley & Scarborough,
L.L.P., special South Carolina tax counsel to the South Carolina Fund, under
existing South Carolina law as long as the South Carolina Fund qualifies as a
separate "regulated investment company" under the Code, shareholders of the
South Carolina Fund will not be required to include in their South Carolina
gross income distributions from the South Carolina Fund to the extent such
distributions qualify as "exempt-interest dividends" as defined in the Code,
which are directly attributable to interest received by the South Carolina
Fund on tax-exempt obligations issued by the State of South Carolina or its
political subdivisions or the United States. In the event the South Carolina
Fund fails to qualify as a separate "regulated investment company," the
foregoing exemption may be unavailable or substantially limited. The opinion
addresses the tax consequences when the South Carolina Fund invests directly
in these obligations. The application of these consequences to the South
Carolina Fund when investing in interests of another registered investment
company was ruled upon favorably by the South Carolina Tax Commission.
Capital gains distributed by the South Carolina Fund, or gains realized by a
shareholder from a redemption or sale of shares of the South Carolina Fund,
will be subject to South Carolina income taxes.
As intangible personal property, the shares of the South Carolina Fund are
exempt from any and all ad valorem taxation in South Carolina.
TENNESSEE. Historically, the Tennessee economy has been characterized by a
greater concentration in manufacturing employment than the U.S. as a whole.
The economy is, however, undergoing a structural change through the increase
in service sector and trade sector employment. The service and trade sectors
each account for approximately 25% of employment, while manufacturing accounts
for about 23% of employment. The August, 1996 unemployment rate was 4.4%.
Tennessee's financial operations are considerably different than most other
states because there is no state payroll income tax. This factor, together
with the State's reliance on the sales tax for a large percentage of General
Fund receipts, exposes total State tax collections to considerably more
volatility than would otherwise be the case and, in the event of an economic
downswing, could effect the State's ability to pay principal and interest in a
timely manner. Under the State constitution, no debt may be authorized for the
current operation of any State service or program unless repaid within the
fiscal year of issuance. For the fiscal year 1993, a 0.5% increase in the
sales tax rate was enacted and dedicated towards the implementation of certain
educational reforms enacted by the legislature. The State's General Fund
balance was reduced by $66 million and $62 million in 1994 and 1995,
respectively. Further fiscal weakness is expected in 1996 and it is uncertain
at this time as to the effect this will have on the credit worthiness of the
State.
Tennessee's general obligation debt is rated AA+, Aaa and AAA, by S&P, Moody's
and Fitch, respectively. S&P has a positive outlook for the State.
TENNESSEE TAXES. In the opinion of Hunton & Williams, special Tennessee tax
counsel to the Tennessee Fund, individual shareholders of the Tennessee Fund
will not be subject to Tennessee individual income tax on distributions
received from the Tennessee Fund to the extent such distributions are
attributable to interest the Tennessee Fund, either directly or through the
Tennessee Portfolio, receives on (i) bonds or securities of the U.S.
Government or any agency or instrumentality thereof, (ii) bonds of the State
of Tennessee or any county, municipality or political subdivision thereof,
including any agency, board, authority or commission, or (iii) bonds of Puerto
Rico, U.S. Virgin Islands or Guam.
The opinion of Hunton & Williams is based on a ruling of the Tennessee
Department of Revenue obtained by Hunton & Williams on behalf of the Tennessee
Fund. That ruling is subject to change. The Tennessee Fund will report
annually to its shareholders the percentage and source, on a state-by-state
basis, of interest income received by the Tennessee Fund on municipal bonds
during the preceding year.
On March 16, 1994, the Tennessee Fund received a letter ruling from the
Department of Revenue of the State of Tennessee to the effect that
distributions of capital gains from the Tennessee Fund attributable to tax-
exempt securities are exempt from Tennessee income tax. Tennessee Fund
management believes that Eaton Vance is the only mutual fund sponsor that has
obtained such a ruling. The ruling is subject to change under certain
conditions.
VIRGINIA. The Constitution of Virginia requires a balanced budget and limits
the ability of the Commonwealth to create debt. General obligation debt may be
incurred to meet certain short-term needs, to finance capital projects and,
under less stringent restrictions, to finance revenue-producing capital
projects. Also, "special fund" revenue bonds, to which the constitutional debt
restrictions do not apply and which are not supported by the full faith and
credit of the Commonwealth, may be issued to finance qualifying Commonwealth
revenue projects.
General obligations of cities, towns and counties are payable from the general
revenues of the entity, including ad valorem tax revenues on property within
the jurisdiction. Revenue obligations issued by other entities are customarily
payable only from revenues from the particular project or projects involved.
The Commonwealth has maintained a high level of fiscal stability for many
years due in large part to conservative financial operations and diverse
sources of revenue. The budget for the 1994-96 biennium submitted by the
Governor does not contemplate any significant new taxes or increases in the
scope or amount of existing taxes.
The economy of Virginia is based primarily on manufacturing, the government
sector, agriculture, mining and tourism, and unemployment rates are typically
below the national average. August 1996 unemployment was 4.0% versus a
national rate of 5.1%. The Commonwealth has a long history of fiscal
stability, due in large part to a conservative financial philosophy, broad-
based employment opportunities and diverse sources of revenue. In the past
decade, however, the Commonwealth has experienced cycles of financial
stringency. No significant new taxes or increases were enacted by the General
Assembly at the 1995 session.
As a result of litigation involving proceedings before the United States
Supreme Court, the Commonwealth may be obligated to refund tax payments made
by federal pensioners of up to $707.5 million. Legislation has been enacted to
effect a settlement of the litigation, but a significant number of federal
pensioners opted out of the settlement, necessitating its reauthorization in
1995, and there can be no assurance that it will result in release of the
pensioners' claims and dismissal of their lawsuits.
General obligations of Virginia are rated Aaa, AAA, and AAA by Moody's, S&P
and Fitch, respectively.
VIRGINIA TAXES. In the opinion of Hunton & Williams, special Virginia tax
counsel to the Virginia Fund, under existing Virginia law, distributions from
the Virginia Fund will not be subject to Virginia individual, trust, estate,
or corporate income taxation to the extent that such distributions are either
(i) excluded from federal gross income and attributable to interest the
Virginia Fund, either directly or through the Virginia Portfolio, receives on
obligations of Virginia, its political subdivisions, or its instrumentalities,
or Puerto Rico, U.S. Virgin Islands, or Guam or (ii) attributable to interest
the Virginia Fund, either directly or through the Virginia Portfolio, receives
on direct obligations of the United States. These Virginia income tax
exemptions will be available only if the Virginia Fund complies with the
requirement of the Code that at least 50% of the value of its assets at the
close of each quarter of its taxable year is invested, either directly or
through the Virginia Portfolio, in state, municipal, or other obligations
described in (S)103(a) of the Code. The Virginia Fund intends to comply with
that requirement.
Other distributions from the Virginia Fund, including capital gains, generally
will not be exempt from Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry shares of the Virginia Fund generally will not be deductible
for Virginia income tax purposes.
Neither the Trust nor the Virginia Fund will be subject to any Virginia
intangible property tax on any obligations in the Virginia Portfolio. In
addition, shares of the Virginia Fund held for investment purposes will not be
subject to any Virginia intangible personal property tax.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly
from fiscal 1984 through fiscal 1990, the rate of this expansion slowed during
fiscal years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Section 936 (a tax incentive that has encouraged economic growth in
Puerto Rico) will be phased out over a ten year period. At this time, it is
uncertain as to the implication the change will have on the Puerto Rico
economy. Although the Puerto Rico unemployment rate has declined substantially
since 1985, the seasonally adjusted unemployment rate for July, 1996 was
approximately 14.1%. The North American Free Trade Agreement (NAFTA), which
became effective January 1, 1994, could lead to the loss of Puerto Rico's
lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a negative outlook on Puerto Rico's rating on April 26, 1994 which
was still in place as of the date of this prospectus.
<PAGE>
EV MARATHON MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
JANUARY 1, 1997
EV Marathon Alabama Municipals Fund
EV Marathon Arkansas Municipals Fund
EV Marathon Georgia Municipals Fund
EV Marathon Kentucky Municipals Fund
EV Marathon Louisiana Municipals Fund
EV Marathon Maryland Municipals Fund
EV Marathon Missouri Municipals Fund
EV Marathon North Carolina Municipals Fund
EV Marathon Oregon Municipals Fund
EV Marathon South Carolina Municipals Fund
EV Marathon Tennessee Municipals Fund
EV Marathon Virginia Municipals Fund
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(617)482-8260
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-TFC1/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV TRADITIONAL
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
EV TRADITIONAL ALABAMA MUNICIPALS FUND EV TRADITIONAL MISSOURI MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND EV TRADITIONAL VIRGINIA MUNICIPALS FUND
</TABLE>
THE EV TRADITIONAL MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THEIR
RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN
THIS PROSPECTUS. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-
DIVERSIFIED OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES. EACH FUND IS A SERIES OF EATON VANCE
MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated January 1, 1997 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses .......................... 2 How to Redeem Fund Shares .......................... 17
The Funds' Financial Highlights ........................ 4 Reports to Shareholders ............................ 18
The Funds' Investment Objectives ....................... 7 The Lifetime Investing Account/Distribution
Investment Policies and Risks .......................... 8 Options .......................................... 18
Organization of the Funds and the Portfolios ........... 11 The Eaton Vance Exchange Privilege ................. 19
Management of the Funds and the Portfolios ............. 12 Eaton Vance Shareholder Services ................... 20
Service Plans .......................................... 14 Distributions and Taxes ............................ 21
Valuing Fund Shares .................................... 15 Performance Information ............................ 22
How to Buy Fund Shares ................................. 15 Appendix -- State Specific Information ............. 23
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED JANUARY 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.40% 0.36% 0.40% 0.41%
Other Expenses (including Service Plan Fees and
after expense allocation) 0.50 0.36 0.43 0.41
---- ---- ---- ----
Total Operating Expenses
(after allocation) 0.90% 0.72% 0.83% 0.82%
==== ==== ==== ====
EXAMPLE
-------------------------------------------------------------------------------------------------------
An investor would pay the following maximum initial sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 46 $ 45 $ 46 $ 46
3 Years 65 60 63 63
5 Years 85 76 82 81
10 Years 144 124 136 135
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.11% 0.40% 0.37% 0.43%
Other Expenses (including Service Plan Fees and
after expense allocation) 0.54 0.57 0.41 0.40
---- ---- ---- ----
Total Operating Expenses
(after reductions) 0.65% 0.97% 0.78% 0.83%
==== ==== ==== ====
EXAMPLE
-------------------------------------------------------------------------------------------------------
An investor would pay the following maximum initial sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 44 $ 47 $ 45 $ 46
3 Years 58 67 61 63
5 Years 72 89 79 82
10 Years 116 152 130 136
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.41% 0.33% 0.31% 0.43%
Other Expenses (including Service Plan Fees and
after reduction) 0.48 0.59 0.43 0.59
---- ---- ---- ----
Total Operating Expenses
(after reduction) 0.89% 0.92% 0.74% 1.02%
==== ==== ==== ====
EXAMPLE
-------------------------------------------------------------------------------------------------------
An investor would pay the following maximum initial sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 46 $ 47 $ 44 $ 48
3 Years 65 66 60 69
5 Years 85 87 77 92
10 Years 143 146 126 158
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year, except that
Service Plan Fees are estimated for the current fiscal year ending August 31,
1997. Absent a fee reduction and an expense allocation the Louisiana Fund's
Investment Adviser Fee, Other Expenses and Total Operating Expenses would have
been 0.23%, 1.34%, and 1.57% respectively. Absent a fee reduction, Other
Expenses and Total Operating Expenses would have been: 0.70% and 1.10%,
respectively, for the Alabama Fund; 2.95% and 3.31% respectively, for the
Arkansas Fund; 1.34% and 1.74%, respectively, for the Georgia Fund; 1.62% and
2.03%, respectively, for the Kentucky Fund; 2.21% and 2.61%, respectively, for
the Maryland Fund; 1.07% and 1.44%, respectively, for the Missouri Fund; 0.57%
and 1.00%, respectively, for the North Carolina Fund; 2.66% and 3.07%,
respectively, for the Oregon Fund; 1.94% and 2.27%, respectively, for the South
Carolina Fund; 2.12% and 2.43%, respectively, for the Tennessee Fund; and 1.71%
and 2.14%, respectively, for the Virginia Fund.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual return
will vary. For further information regarding the expenses of the Funds and the
Portfolios see "The Funds" Financial Highlights", "Management of the Funds and
the Portfolios" and "Service Plans".
No sales charge is payable at the time of purchase on investments of $1 million
or more. However, a contingent deferred sales charge of 0.50% will be imposed on
such investments in the event of certain redemptions within 12 months of
purchase. See "How to Buy Fund Shares" and "How to Redeem Fund Shares".
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 13.
Each Fund invests exclusively in its corresponding Portfolio. Other investment
companies with different distribution arrangements and fees are investing in the
Portfolios and others may do so in the future. See "Organization of the Funds
and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Funds' annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of a Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter.
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------
ALABAMA FUND ARKANSAS FUND
------------------------------------ ----------------------------------
1996 1995 1994* 1996 1995 1994*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.510 $ 9.320 $10.000 $ 9.590 $ 9.530 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.462 $ 0.418 $ 0.296 $ 0.456 $ 0.424 $ 0.214
Net realized and unrealized gain
(loss) on investments 0.033 0.207 (0.628) (0.053) 0.075 (0.430)
------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.495 $ 0.625 $(0.332) $ 0.404 $ 0.499 $(0.216)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.465) $(0.418) $(0.296) $(0.473) $(0.424) $(0.214)
In excess of net investment
income(4) -- (0.017) (0.052) -- (0.015) (0.040)
------- ------- ------- ------- ------- -------
Total distributions $(0.465) $(0.435) $(0.348) $(0.473) $(0.439) $(0.254)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.540 $ 9.510 $ 9.320 $ 9.520 $ 9.590 $ 9.530
======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.49% 6.90% (3.44)% 4.37% 5.52% (2.25)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 6,231 $ 9,427 $11,732 $ 1,040 $ 533 $ 627
Ratio of net expenses to
average daily net assets(2)(5) 1.27% 1.68% 1.49%+ 0.97% 1.42% 1.59%+
Ratio of net expenses to average
daily net assets after
custodian fee reduction(2) 1.22% -- -- 0.95% -- --
Ratio of net investment
income to average daily
net assets 4.74% 4.59% 4.23%+ 4.76% 4.56% 3.97%+
** For the periods indicated, operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income (loss) per share and
the ratios would have been:
NET INVESTMENT INCOME (LOSS)
PER SHARE $ 0.442 $ 0.408 $ 0.280 $ 0.208 $ 0.175 (0.005)
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(5) 1.47% 1.80% 1.71%+ 3.56% 4.09% 5.66%+
Expenses after custodian
fee reduction(2) 1.42% -- -- 3.54% -- --
Net investment income (loss) 4.54% 4.47% 4.01%+ 2.17% 1.89% (0.10)%+
(See footnotes on page 6.)
<PAGE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------
GEORGIA FUND KENTUCKY FUND
------------------------------------ ----------------------------------
1996 1995 1994* 1996 1995 1994*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.190 $ 9.220 $10.000 $ 9.320 $ 9.210 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.464 $ 0.412 $ 0.294 $ 0.453 $ 0.423 $ 0.285
Net realized and unrealized gain
(loss) on investments 0.017 (0.011) (0.726) (0.011)++ 0.128++ (0.730)
------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.481 $ 0.401 $(0.432) $ 0.442 $ 0.551 $(0.445)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.461) $(0.412) $(0.294) $(0.472) $(0.423) $(0.285)
In excess of net investment
income(4) -- (0.019) (0.054) -- (0.018) (0.060)
------- ------- ------- ------- ------- -------
Total distributions $(0.461) $(0.431) $(0.348) $(0.472) $(0.441) $(0.345)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.210 $ 9.190 $ 9.220 $ 9.290 $ 9.320 $ 9.210
======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.43% 4.60% (4.56)% 4.91% 6.29% (4.60)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 1,631 $ 2,487 $2,989 $ 1,261 $ 1,823 $ 3,065
Ratio of net expenses to
average daily net assets(2)(5) 1.19% 1.55% 1.64%+ 1.19% 1.46% 1.69%+
Ratio of net expenses to average
daily net assets after
custodian fee reduction(2) 1.07% -- -- 1.15% -- --
Ratio of net investment
income to average daily
net assets 4.95% 4.62% 4.09%+ 4.76% 4.81% 4.12%+
** For the periods indicated, operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income (loss) per share and
the ratios would have been:
NET INVESTMENT INCOME (LOSS)
PER SHARE $ 0.379 $ 0.353 $ 0.253 $ 0.338 $ 0.303 $ 0.253
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(5) 2.10% 2.21% 2.20%+ 2.40% 2.82% 2.26%+
Expenses after custodian
fee reduction(2) 1.98% -- -- 2.36% -- --
Net investment income (loss) 4.04% 3.96% 3.53%+ 3.55% 3.45% 3.56%+
(See footnotes on page 6.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------
LOUISIANA FUND MARYLAND FUND
------------------------------------ ----------------------------------
1996 1995 1994* 1996 1995 1994*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.440 $ 9.470 $10.000 $ 9.380 $ 9.210 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.497 $ 0.449 $ 0.223 $ 0.446 $ 0.421 $ 0.277
Net realized and unrealized gain
(loss) on investments (0.014) (0.011) (0.486) 0.072 0.187++ (0.731)
------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.483 $ 0.438 $(0.263) $ 0.518 $ 0.608 $(0.454)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.503) $(0.449) $(0.223) $(0.466) $(0.421) $(0.277)
In excess of net investment
income(4) -- (0.019) (0.044) (0.002) (0.017) (0.059)
------- ------- ------- ------- ------- -------
Total distributions $(0.503) $(0.468) $(0.267) $(0.468) $(0.438) $(0.336)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.420 $ 9.440 $ 9.470 $ 9.430 $ 9.380 $ 9.210
======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.34% 4.88% (2.72)% 5.70% 6.91% (4.68)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 1,978 $ 2,384 $ 3,141 $ 982 $ 939 $ 1,188
Ratio of net expenses to
average daily net
assets(2)(5) 1.00% 1.41% 1.57%+ 1.29% 1.50% 1.64%+
Ratio of net expenses to
average daily net assets
after custodian fee
reduction(2) 0.92% -- -- 1.24% -- --
Ratio of net investment
income to average daily
net assets 5.19% 4.90% 4.16%+ 4.64% 4.71% 4.07%+
** For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been:
NET INVESTMENT INCOME PER SHARE $ 0.409 $ 0.401 $ 0.169 $ 0.289 $ 0.238 $ 0.046
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.92% 1.93% 2.77%+ 2.93% 3.56% 5.07%+
Expenses after custodian
fee reduction(2) 1.84% -- -- 2.87% -- --
Net investment income 4.27% 4.38% 2.96%+ 3.01% 2.65% 0.64%+
(See footnotes on page 6.)
<PAGE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------
MISSOURI FUND NORTH CAROLINA FUND
------------------------------------ ----------------------------------
1996 1995 1994* 1996 1995 1994*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.480 $ 9.290 $10.000 $ 9.280 $ 9.280 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.466 $ 0.419 $ 0.289 $ 0.452 $ 0.427 $0.295
Net realized and unrealized gain
(loss) on investments 0.010 0.208 (0.651) 0.011++ 0.016++ (0.666)
------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.476 $ 0.627 $(0.362) $ 0.463 $ 0.443 $(0.371)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.466) (0.419) $(0.289) $(0.473) (0.427) $(0.295)
In excess of net investment
income(4) -- (0.018) (0.059) -- (0.016) (0.054)
------- ------- ------- ------- ------- -------
Total distributions $(0.466) (0.437) $(0.348) $(0.473) (0.443) $(0.349)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.490 $ 9.480 $ 9.290 $ 9.270 $ 9.280 $9.280
======= ======= ======= ======= ======= ======
TOTAL RETURN(1) 5.20% 7.08% (3.76)% 5.15% 5.02% (385)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 2,408 $ 3,163 $ 3,859 $16,504 $ 6,115 $7,411
Ratio of net expenses to
average daily net
assets(2)(4) 1.13% 1.61% 1.61%+ 0.99% 1.55% 1.56%+
Ratio of net expenses to
average daily net assets
after custodian fee
reduction(2) 1.11% -- -- 0.94% -- --
Ratio of net investment
income to average daily
net assets 4.87% 4.62% 4.20%+ 5.00% 4.72% 4.19%+
** For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been:
NET INVESTMENT INCOME PER SHARE $ 0.403 $ 0.363 $ 0.255 $ 0.443 $ 0.403 $0.263
======= ======= ======= ======= ======= ======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.79% 2.23% 2.19%+ 1.16% 1.82% 2.01%+
Expenses after custodian
fee reduction(2) 1.77% -- -- 1.11% -- --
Net investment income 4.21% 4.00% 3.62%+ 4.84% 4.45% 3.74%+
(See footnotes on page 6.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------
OREGON FUND SOUTH CAROLINA FUND
------------------------------------ ----------------------------------
1996 1995 1994* 1996 1995 1994*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.440 $ 9.240 $10.000 $ 9.420 $ 9.370 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.435 $ 0.406 $ 0.263 $ 0.465 $ 0.413 $ 0.205
Net realized and unrealized
gain (loss) on investments (0.047) 0.221++ (0.703) 0.008 0.067++ (0.587)
------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.388 $ 0.627 $(0.440) $ 0.473 $ 0.480 $(0.382)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.458) $(0.406) $(0.263) $(0.463) $(0.413) $(0.205)
In excess of net investment
income(4) -- (0.021) (0.057) -- (0.017) (0.043)
------- ------- ------- ------- ------- -------
Total distributions $(0.458) $(0.427) $(0.320) $(0.463) $(0.430) $(0.248)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.370 $ 9.440 $ 9.240 $ 9.430 $ 9.420 $ 9.370
======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 4.25% 7.11% (4.54)% 5.19% 5.38% (3.92)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 765 $ 998 $ 1,878 $ 902 $ 1,245 $ 2,309
Ratio of net expenses to
average daily net assets(2)(4) 1.23% 1.51% 1.65%+ 1.30% 1.61% 1.76%+
Ratio of net expenses to
average daily net assets after
custodian fee reduction(2) 1.20% -- -- 1.27% -- --
Ratio of net investment
income to average
daily net assets 4.54% 4.61% 3.99%+ 4.79% 4.61% 4.06%+
** For periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been:
NET INVESTMENT INCOME PER SHARE $ 0.226 $ 0.261 $ 0.153 $ 0.332 $ 0.326 $ 0.161
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(5) 3.41% 3.16% 3.33%+ 2.65% 2.58% 2.62%+
Expenses after custodian
fee reduction(2) 3.38% -- -- 2.63% -- --
Net investment income 2.36% 2.96% 2.31%+ 3.43% 3.64% 3.19%+
<PAGE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------
TENNESSEE FUND VIRGINIA FUND
------------------------------------ ----------------------------------
1996 1995 1994* 1996 1995 1994*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.330 $ 9.220 $10.000 $ 9.330 $ 9.210 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.460 $ 0.425 $ 0.285 $ 0.463 $ 0.434 $ 0.296
Net realized and unrealized
gain (loss) on investments 0.040 0.131 (0.724) (0.002)++ 0.138 (0.732)
----- ----- ------ ------ ----- ------
Total income (loss)
from operations $ 0.500 $ 0.556 $(0.439) $ 0.461 $ 0.572 $(0.436)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.476) (0.425) $ (0.285) $(0.478) (0.434) $(0.296)
In excess of net investment income(4) (0.004) (0.021) (0.056) (0.003) (0.018) (0.058)
------- ------ ------- ------- ------- --------
Total distributions $(0.480) (0.446) $(0.341) $(0.481) (0.452) $(0.354)
------- ------ ------- ------- ------- --------
NET ASSET VALUE, end of year $ 9.350 $ 9.330 $ 9.220 $ 9.310 $ 9.330 $ 9.210
======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.52% 6.32% (4.54)% 5.10% 6.51% (4.51)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 1,350 $ 1,084 $ 1,132 $ 1,103 $ 1,488 $ 1,315
Ratio of net expenses to
average daily net assets(2)(4) 1.04% 1.45% 1.59%+ 1.18% 1.42% 1.54%+
Ratio of net expenses to
average daily net assets after
custodian fee reduction(2) 1.02% -- -- 1.12% -- --
Ratio of net investment income to
average daily net assets 4.84% 4.71% 4.15%+ 4.85% 4.79% 4.31%+
** For periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been:
NET INVESTMENT INCOME PER SHARE $ 0.298 $ 0.292 $ 0.158 $ 0.344 $ 0.306 $ 0.190
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(5) 2.73% 2.92% 3.50%+ 2.42% 2.83% 3.08%+
Expenses after custodian
fee reduction(2) 2.71% -- -- 2.36% -- --
Net investment income 3.14% 3.24% 2.24%+ 3.60% 3.38% 2.77%+
Footnotes:
* For the Alabama, Arkansas, Georgia, Kentucky, Louisiana, Maryland, Missouri, North Carolina, Oregon, South Carolina,
Tennessee and Virginia Funds, the Financial Highlights are for the period from the start of business, December 7, 1993,
February 9, 1994, December 7, 1993, December 7, 1993, February 14, 1993, December 10, 1993, December 7, 1993, December 7,
1993, December 28, 1993, February 14, 1994, December 9, 1993 and December 17, 1993, respectively, to August 31, 1994.
+ Annualized.
++ The per share amount is not in accord with the net realized gain (loss) for the period because of the timing of sales of
Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(1) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Distributions, if any, are assumed to be reinvested at the net asset value on the
payable date. Total Return is computed on a non-annualized basis.
(2) Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(3) Prior to February 1, 1996, each Fund made distribution fee payments pursuant to a Distribution Plan. See "Service Plans."
(4) The Funds have followed the Statement of Position (SOP) 93-2: Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distribution by Investment Companies. The SOP requires that differences in
the recognition or classification of income between the financial statements and tax earnings and profits that result in
temporary over-distributions for financial statement purposes, are classified as distributions in excess of net investment
income or accumulated net realized gains.
(5) The expense ratios for the year ended August 31, 1996 have been adjusted to reflect a change in reporting requirements. The
new reporting guidelines require each Fund to increase its expense ratio by the effect of any expense offset arrangements
with its service providers or those of the Portfolio. The expense ratios for each of the periods ended on or before August
31, 1995 have not been adjusted to reflect this change.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- ------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio"). Each
Portfolio invests primarily in municipal obligations (as described below) which
are rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment Adviser.
Each Portfolio has the same investment objective as its corresponding Fund.
EV TRADITIONAL ALABAMA MUNICIPALS FUND (the "Alabama Fund") seeks to provide
current income exempt from regular federal income tax and Alabama State personal
income taxes. The Alabama Fund seeks to meet its objective by investing its
assets in the Alabama Municipals Portfolio (the "Alabama Portfolio").
EV TRADITIONAL ARKANSAS MUNICIPALS FUND (the "Arkansas Fund") seeks to provide
current income exempt from regular federal income tax and Arkansas State
personal income taxes. The Arkansas Fund seeks to meet its objective by
investing its assets in the Arkansas Municipals Portfolio (the "Arkansas
Portfolio").
EV TRADITIONAL GEORGIA MUNICIPALS FUND (the "Georgia Fund") seeks to provide
current income exempt from regular federal income tax and Georgia State personal
income taxes. The Georgia Fund seeks to meet its objective by investing its
assets in the Georgia Municipals Portfolio (the "Georgia Portfolio").
EV TRADITIONAL KENTUCKY MUNICIPALS FUND (the "Kentucky Fund") seeks to provide
current income exempt from regular federal income tax and Kentucky state
personal income taxes in the form of an investment exempt from the Kentucky
intangibles tax. The Kentucky Fund seeks to meet its objective by investing its
assets in the Kentucky Municipals Portfolio (the "Kentucky Portfolio").
EV TRADITIONAL LOUISIANA MUNICIPALS FUND (the "Louisiana Fund") seeks to provide
current income exempt from regular federal income tax and Louisiana State
individual and corporate income taxes. The Louisiana Fund seeks to meet its
objective by investing its assets in the Louisiana Municipals Portfolio (the
"Louisiana Portfolio").
EV TRADITIONAL MARYLAND MUNICIPALS FUND (the "Maryland Fund") seeks to provide
current income exempt from regular federal income tax and Maryland State and
local income taxes. The Maryland Fund seeks to meet its objective by investing
its assets in the Maryland Municipals Porfolio (the "Maryland Portfolio").
EV TRADITIONAL MISSOURI MUNICIPALS FUND (the "Missouri Fund") seeks to provide
current income exempt from regular federal income tax and Missouri State
personal income taxes. The Missouri Fund seeks to meet its objective by
investing its assets in the Missouri Municipals Portfolio (the "Missouri
Portfolio").
EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND (the "North Carolina Fund") seeks
to provide current income exempt from regular federal income tax and North
Carolina State personal income taxes. The North Carolina Fund seeks to meet its
objective by investing its assets in the North Carolina Municipals Portfolio
(the "North Carolina Portfolio").
EV TRADITIONAL OREGON MUNICIPALS FUND (the "Oregon Fund") seeks to provide
current income exempt from regular federal income tax and Oregon State personal
income taxes. The Oregon Fund seeks to meet its objective by investing its
assets in the Oregon Municipals Portfolio (the "Oregon Portfolio").
EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND (the "South Carolina Fund") seeks
to provide current income exempt from regular federal income tax and South
Carolina State personal income taxes. The South Carolina Fund seeks to meet its
objective by investing its assets in the South Carolina Municipals Portfolio
(the "South Carolina Portfolio").
EV TRADITIONAL TENNESSEE MUNICIPALS FUND (the "Tennessee Fund") seeks to provide
current income exempt from regular federal income tax and Tennessee State
personal income taxes. The Tennessee Fund seeks to meet its objective by
investing its assets in the Tennessee Municipals Portfolio (the "Tennessee
Portfolio").
EV TRADITIONAL VIRGINIA MUNICIPALS FUND (the "Virginia Fund") seeks to provide
current income exempt from regular federal income tax and Virginia state
personal income taxes. The Virginia Fund seeks to meet its objective by
investing its assets in the Virginia Municipals Portfolio (the "Virginia
Portfolio").
<PAGE>
INVESTMENT POLICIES AND RISKS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE WITH
ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy is a
fundamental policy of each Fund and its corresponding Portfolio, which may not
be changed unless authorized by a vote of the Fund's shareholders or that
Portfolio's investors, as the case may be.
At least 75% of the net assets of the Alabama Portfolio, Arkansas Portfolio,
Georgia Portfolio, Louisiana Portfolio, Maryland Portfolio, Missouri Portfolio,
North Carolina Portfolio, South Carolina Portfolio, Tennessee Portfolio and
Virginia Portfolio and at least 70% of the net assets of the Kentucky Portfolio
and Oregon Portfolio will normally be invested in obligations rated at least
investment grade at the time of investment (which are those rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by either
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch")) or, if unrated, determined by the Investment Adviser to be of at
least investment grade quality. The balance of each Portfolio's net assets may
be invested in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. Municipal obligations rated
Baa or BBB may have speculative characteristics. Also, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher rated
obligations. Securities rated below BBB or Baa are commonly known as "junk
bonds". A Portfolio may retain an obligation whose rating drops below B after
its acquisition if such retention is considered desirable by the Investment
Adviser. See "Additional Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and commercial
paper issued by a municipality for a wide variety of both public and private
purposes, the interest on which is, in the opinion of bond counsel, exempt from
regular federal income tax. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility, or from the proceeds of a specific revenue source. Some
revenue bonds are payable solely or partly from funds which are subject to
annual appropriations by a State's legislature and the availability of monies
for such payments. Municipal notes include bond anticipation, tax anticipation
and revenue anticipation notes. Bond, tax and revenue anticipation notes are
short-term obligations that will be retired with the proceeds of an anticipated
bond issue, tax revenue or facility revenue, respectively. Under normal market
conditions, a Portfolio will invest at least 65% of its total assets in
obligations issued by its respective State or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax (the "AMT") for individual investors. As at
August 31, 1996, the Portfolios had invested in such obligations as follows (as
a percentage of net assets): Alabama Portfolio (17.2%); Arkansas Portfolio
(20.9%); Georgia Portfolio (16.9%); Kentucky Portfolio (24.3%); Louisiana
Portfolio (36.8%); Maryland Portfolio (17.7%); Missouri Portfolio (18.8%); North
Carolina Portfolio (16.3%); Oregon Portfolio (21.5%); South Carolina Portfolio
(26.0%); Tennessee Portfolio (18.6%); and Virginia Portfolio (16.9%).
Distributions to corporate investors of certain interest income may also be
subject to the AMT. The Funds may not be suitable for investors subject to the
AMT.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely effected by economic developments (including insolvency
of an issuer) and by legislation and other governmental activities in that
State. Municipal obligations that rely on an annual appropriation of funds by a
State's legislature for payment are also subject to the risk that the
legislature will not appropriate the necessary amounts or take other action
needed to permit the issuer of such obligations to make required payments. To
the extent that a Portfolio's assets are concentrated in municipal obligations
of issuers of a single State, that Portfolio may be subject to an increased risk
of loss. Each Portfolio may also invest in obligations issued by the governments
of Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix to this
Prospectus for a description of some of the economic and other factors relating
to the States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities; obligations
dependent on annual appropriations by a State's legislature for payment;
obligations of State and local housing finance authorities, municipal utilities
systems or public housing authorities; obligations of hospitals or life care
facilities; or industrial development or pollution control bonds issued for
electric utility systems, steel companies, paper companies or other purposes.
This may make a Portfolio more susceptible to adverse economic, political, or
regulatory occurrences affecting a particular category of issuer. For example,
health care-related issuers are susceptible to medicaid reimbursement policies,
and national and State health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5% (but
not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio is more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive their
value from another instrument, security or index. In addition, each Portfolio
may temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a
"when-issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to a Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may,
however, alter this tendency. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time. Inverse floaters
are leveraged because they provide two or more dollars of bond market exposure
for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities (such
as U.S. Government securities and municipal obligations) and securities indices
(such as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed a Portfolio's initial investment
in these contracts. A Portfolio may not purchase or sell futures contracts or
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits and premiums
paid on the Portfolio's outstanding positions would exceed 5% of the market
value of the Portfolio's net assets. These transactions involve transaction
costs. There can be no assurance that the Investment Adviser's use of futures
will be advantageous to a Portfolio. Distributions by a Fund of any gains
realized on its corresponding Portfolio's transactions in futures and options on
futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest investment
grade category (Baa or BBB), lower categories or may be unrated. As indicated
above, each Portfolio may invest in municipal obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and comparable unrated
obligations. The lowest investment grade, lower rated and comparable unrated
municipal obligations in which a Portfolio may invest will have speculative
characteristics in varying degrees. While such obligations may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by uncertainties or major risk exposures to adverse
conditions. Lower rated and comparable unrated municipal obligations are subject
to the risk of an issuer's inability to meet principal and interest payments on
the obligations (credit risk) and may also be subject to greater price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated municipal obligations are also more likely to
react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Investment Adviser seeks to minimize the
risks of investing in below investment grade securities through professional
investment analysis and attention to current developments in interest rates and
economic conditions. When a Portfolio invests in lower rated or unrated
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio which are rated
below investment grade but which, subsequent to the assignment of such rating,
are backed by escrow accounts containing U.S. Government obligations may be
determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will be less than
35% of net assets. In the event the rating of an obligation held by a Portfolio
is downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the
Portfolio's credit quality limitations.
The net asset value of shares of a Fund will change in response to fluctuations
in prevailing interest rates and changes in the value of the securities held by
its corresponding Portfolio. When interest rates decline, the value of
securities held by a Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by a Portfolio will affect the principal value of (and possibly
the income earned on) such obligations. In addition, the values of such
securities are affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of a security and in the ability of
the issuer to make payments of principal and interest may also affect the value
of a Portfolio's investments. The amount of information about the financial
condition of an issuer of municipal obligations may not be as extensive as that
made available by corporations whose securities are publicly traded. An
investment in shares of a Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by the Investment Adviser and its affiliates, holds a major portion or
all of such securities. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Portfolio
could find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15% of
its net assets would be invested in securities that are not readily marketable.
No established resale market exists for certain of the municipal obligations in
which a Portfolio may invest. The market for obligations rated below investment
grade is also likely to be less liquid than the market for higher rated
obligations. As a result, a Portfolio may be unable to dispose of these
municipal obligations at times when it would otherwise wish to do so at the
prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option to
"call", or redeem, its securities. If an issuer redeems securities held by the
Portfolio during a time of declining interest rates, the Portfolio may not be
able to reinvest the proceeds in securities providing the same investment return
as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. Each Portfolio is required to accrue income from zero-coupon bonds on
a current basis, even though it does not receive that income currently in cash
and each Fund is required to distribute its share of the Portfolio's income for
each taxable year. Thus, a Portfolio may have to sell other investments to
obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES
AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO
WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN
THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS 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 (such as the Funds). Each share represents an equal
proportionate beneficial interest in a Fund. When issued and outstanding, each
Fund's shares are fully paid and nonassessable by the Trust and redeemable as
described under "How to Redeem Fund Shares." Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
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, affords the potential for economies of scale for each Fund (at least
when the assets of its corresponding Portfolio exceed $500 million) and over
time may result in lower expenses for a fund.
In addition to selling an interest to its corresponding Fund, a Portfolio may
sell interests to other affiliated and non-affiliated mutual funds or
institutional investors. Such investors will invest in a Portfolio on the same
terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. Information regarding other pooled investment entities or funds which
invest in a Portfolio may be obtained by contacting the Principal Underwriter,
24 Federal Street, Boston, MA 02110, (617) 482-8260.
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.
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. In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of the
Trust determines that the investment objective of such Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of such Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. A Fund's
investment performance may be affected by a withdrawal of all its assets from
its corresponding Portfolio.
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. 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. Under
its investment advisory agreement with a Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
----------------------------------------------------------------------------
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
Each Portfolio paid advisory fees for the fiscal year ended August 31, 1996
equivalent to the annualized percentage of average daily net assets stated
below.
AVERAGE
NET ASSETS AS OF
PORTFOLIO AUGUST 31, 1996 ADVISORY FEE
----------------------------------------------------------------------------
Alabama ............................. $108,543,550 0.40%
Arkansas ............................ 74,103,217 0.36%
Georgia ............................. 108,974,295 0.40%
Kentucky ............................ 133,017,453 0.41%
Louisiana ........................... 35,048,671 0.12%(1)
Maryland ............................ 110,588,345 0.40%
Missouri ............................ 85,162,363 0.37%
North Carolina ...................... 187,044,385 0.43%
Oregon .............................. 129,758,655 0.41%
South Carolina ...................... 58,318,147 0.33%
Tennessee ........................... 56,065,353 0.31%
Virginia ............................ 177,644,321 0.43%
(1) Absent a fee reduction, the Louisiana Portfolio would have paid BMR advisory
fees equivalent to 0.23% of average daily net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
OVER $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton Vance Corp.,
a publicly-held holding company, which through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
Timothy T. Browse has acted as the portfolio manager of the Alabama, Arkansas
and Maryland Portfolios since they commenced operations and the Virginia
Portfolio since November 1, 1996. 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).
Thomas M. Metzold has acted as the portfolio manager of the Oregon Portfolio
since November 1, 1996. He has been a Vice President of Eaton Vance since 1991
and of BMR since 1992, and an employee of Eaton Vance since 1987.
Cynthia J. Clemson has acted as the portfolio manager of the Missouri and
Tennessee Portfolios since they commenced operations and the Georgia Portfolio
since January 1, 1996. Ms. Clemson has been a Vice President of Eaton Vance and
BMR since 1993 and an employee of Eaton Vance since 1985.
Nicole Anderes has acted as the portfolio manager of the Kentucky Portfolio
since November 1, 1996. She joined BMR and Eaton Vance 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 at Municipal Research at Roosevelt & Cross (1987-1992).
Thomas J. Fetter has acted as the portfolio manager of the South Carolina
Portfolio since January 1, 1996. Mr. Fetter has been a Vice President of Eaton
Vance since 1987 and of BMR since 1992.
Robert B. MacIntosh has acted as the portfolio manager of the North Carolina and
Louisiana Portfolios since January 1, 1996. 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 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. Each Fund, each Portfolio and BMR have adopted Codes of
Ethics relating to personal securities transactions. The Codes permit Eaton
Vance personnel to invest in securities (including securities that may be
purchased or held by a Portfolio) for their own accounts, subject to certain
pre-clearance, reporting and other restrictions and procedures contained in such
Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the administrative
services agreement, or by the Principal Underwriter under the distribution
agreement.
SERVICE PLANS
- ------------------------------------------------------------------------------
In addition to advisory fees and other expenses, each Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the service fee
requirements of the sales charge rule of the National Association of Securities
Dealers, Inc. EACH FUND'S PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE
PAYMENTS FOR PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO
THE PRINCIPAL UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND
OTHER PERSONS IN AMOUNTS NOT EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET
ASSETS FOR ANY FISCAL YEAR. The Trustees of the Trust have initially implemented
each Fund's Plan by authorizing the Fund to make service fee payments to the
Principal Underwriter and Authorized Firms in amounts not expected to exceed
.20% of the Fund's average daily net assets for any fiscal year which is based
on the value of Fund shares sold by such persons and remaining outstanding for
at least twelve months. However, each Fund's Plan authorizes the Trustees of the
Trust on behalf of the Fund to increase payments to the Principal Underwriter,
Authorized Firms and other persons from time to time without further action by
shareholders of the Fund, provided that the aggregate amount of payments made to
such persons under the Plan in any fiscal year of the Fund does not exceed .25%
of the Fund's average daily net assets. For the fiscal year ended August 31,
1996, each Fund paid or accrued service fees (as a percentage of daily net
assets) as follows: Alabama Fund (0.20%); Arkansas Fund (0.20%); Georgia Fund
(0.20%); Kentucky Fund (0.20%); Louisiana Fund (0.20%); Maryland Fund (0.20%);
Missouri Fund (0.20%); North Carolina Fund (0.20%); Oregon Fund (0.19%); South
Carolina Fund (0.10%); Tennessee Fund (0.19%); and Virginia Fund (0.20%). A
portion of the service fee payments made by each Fund was paid pursuant to a
prior version of the Plan. The Plan is described further in the Statement of
Additional Information.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, the Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the effective public offering price, which price is based on the effective net
asset value per share plus the applicable sales charge. A Fund receives the net
asset value, while the sales charge is divided between the Authorized Firm and
the Principal Underwriter. An Authorized Firm may charge its customers a fee in
connection with transactions executed by that Firm. A Fund may suspend the
offering of shares at any time and may refuse an order for the purchase of
shares. Shares of each Fund are offered for sale only in States where such
shares may be legally sold.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement to
purchase additional shares during a 13-month period or special purchase
programs. Complete details of how investors may purchase shares at reduced sales
charges under a Statement of Intention or Right of Accumulation are available
from Authorized Firms or the Principal Underwriter.
The current sales charges and dealer commissions are:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER COMMISSION
AS PERCENTAGE OF AS PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 3.75% 3.90% 4.00%
$50,000 but less than $100,000 2.75 2.83 3.00
$100,000 but less than $250,000 2.25 2.30 2.50
$250,000 but less than $500,000 1.75 1.78 2.00
$500,000 but less than $1,000,000 1.25 1.27 1.50
$1,000,000 or more 0.00* 0.00* 0.50
* No sales charge is payable at the time of purchase on investments of $1 million or more, or where the amount invested
represents redemption proceeds from a mutual fund unaffiliated with Eaton Vance, if the redemption occurred no more than 60
days' prior to the purchase of Fund shares and the redeemed shares were subject to a sales charge. A contingent deferred sales
charge ("CDSC") of 0.50% will be imposed on such investments (as described below) in the event of certain redemptions within 12
months of purchase.
</TABLE>
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933. The Principal Underwriter may, from time to time, at its
own expense, provide additional incentives to Authorized Firms which employ
registered representatives who sell Fund shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose representatives
sell or are expected to sell significant amounts of shares.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
Shares of a Fund may be sold at net asset value to current and retired Directors
and Trustees of Eaton Vance funds, including the Portfolios; to clients and
current and retired officers and employees of Eaton Vance, its affiliates and
other investment advisers of Eaton Vance sponsored funds; to registered
representatives and employees of Authorized Firms; and bank employees who refer
customers to registered representatives of Authorized Firms; to officers and
employees of IBT and the Transfer Agent; and to such persons' spouses and
children under the age of 21 and their beneficial accounts. Shares may also be
issued at net asset value (1) in connection with the merger of an investment
company with a Fund, (2) to investors making an investment as part of a fixed
fee program whereby an entity unaffiliated with the Investment Adviser provides
multiple investment services, such as management, brokerage and custody, and (3)
to investment advisors, financial planners or other intermediaries who place
trades for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients of such
investment advisors, financial planners or other intermediaries who place trades
for their own accounts if the accounts are linked to the master account of such
investment advisor, financial planner or other intermediary on the books and
records of the broker or agent; and retirement and deferred compensation plans
and trusts used to fund those plans, including, but not limited to, those
defined in Section 401 (a), 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), and "rabbi trusts".
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at the applicable public offering price as determined above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold on the day of their receipt or as soon
thereafter as possible. The number of Fund shares to be issued in exchange for
securities will be the aggregate proceeds from the sale of such securities,
divided by the applicable public offering price per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a Fund,
or their representatives, must contact Eaton Vance to determine whether the
securities are acceptable before forwarding such securities to IBT. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, State and local tax
consequences of exchanging securities for Fund shares.
STATEMENT OF INTENTION AND ESCROW AGREEMENT If the investor, on an application,
makes a Statement of Intention to invest a specified amount over a thirteen
month period, then out of the initial purchase (or subsequent purchases if
necessary) 5% of the dollar amount specified on the application shall be held in
escrow by the escrow agent in the form of shares (computed to the nearest full
share at the public offering price applicable to the initial purchase hereunder)
registered in the investor's name. All income dividends and capital gains
distributions on escrowed shares will be paid to the investor or to the
investor's order. When the minimum investment so specified is completed, the
escrowed shares will be delivered to the investor. If the investor has an
accumulation account the shares will remain on deposit under the investor's
account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to the Principal Underwriter any
difference between the sales charge on the amount specified and on the amount
actually purchased. If the investor does not within 20 days after written
request by the Principal Underwriter or the Authorized Firm pay such difference
in sales charge, the escrow agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Full shares remaining after
any such redemption together with any excess cash proceeds of the shares so
redeemed will be delivered to the investor or to the investor's order by the
escrow agent.
If total purchases made under this Statement are large enough to qualify for a
lower sales charge than that applicable to the amount specified, all
transactions will be computed at the expiration date of this Statement to give
effect to the lower charge. Any difference in sales charge will be refunded to
the investor in cash, or applied to the purchase of additional shares at the
lower charge if specified by the investor. This refund will be made by the
Authorized Firm and by the Principal Underwriter. If at the time of the
recomputation a firm other than the original firm is placing the orders, the
adjustment will be made only on those shares purchased through the firm then
handling the investor's account.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. 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 (the "Commission") and acceptable to the Transfer Agent.
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.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: 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 the Principal Underwriter, as
the Funds' agent, receives the order. It is the Authorized Firm's responsibility
to transmit promptly repurchase orders to the Principal Underwriter. Throughout
this Prospectus, the word "redemption" is generally meant to include a
repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, a Fund will make payment in cash for the net asset value of the
shares as of the date determined above, reduced by the amount of any federal
income tax required to be withheld. Although each Fund normally expects to make
payment in cash for redeemed shares, the Trust, subject to compliance with
applicable regulations, has reserved the right to pay the redemption price of
shares of a Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by that Fund from its corresponding
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
If shares were recently purchased, the proceeds of redemption 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 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 $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make an additional
purchase. 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.
If shares have been purchased at net asset value with no initial sales charge by
virtue of the purchase having been in the amount of $1 million or more and are
redeemed within 12 months of purchase, a CDSC of 0.50% will be imposed on such
redemption. The CDSC will be imposed on an amount equal to the lesser of the
current market value or the original purchase price of the shares redeemed.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends or distributions that have been
reinvested in additional shares. In determining whether a CDSC is applicable to
a redemption, the calculation will be made in a manner that results in the
lowest possible rate being charged. It will be assumed that redemptions are made
first from any shares in the shareholder's account that are not subject to a
CDSC. The CDSC will be retained by the Principal Underwriter.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a shareholder
reinvests redemption proceeds within a 60-day period and in accordance with the
conditions set forth under "Eaton Vance Shareholder Services -- Reinvestment
Privilege," the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
Consistent with applicable law, duplicate mailings of shareholder reports and
certain other Fund information to shareholders residing at the same address may
be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE TRANSFER AGENT
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 Transfer Agent.
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 Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of the
shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Funds'
dividend disbursing agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. 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.
THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of a Fund currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase of shares to an
initial sales charge, an amount equal to the difference, if any, between the
sales charge previously paid on the shares being exchanged and the sales charge
payable on the shares being acquired). 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.
Shares of a Fund which are subject to a CDSC may be exchanged into any of the
above funds without incurring the CDSC. The shares acquired in an exchange may
be subject to a CDSC upon redemption. For purposes of computing the CDSC payable
upon redemption of shares acquired in an exchange, the holding period of the
original shares is added to the holding period of the shares acquired in the
exchange.
The Transfer Agent 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 Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of the other funds are available from
Authorized Firms or the Principal Underwriter. The prospectus for each fund
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange.
Shares of certain other funds advised or administered by Eaton Vance may be
exchanged for Fund shares on the basis of the net asset value per share of each
fund at the time of the exchange (plus, in the case of an exchange made within
six months of the date of purchase of shares to an initial sales charge, an
amount equal to the difference, if any, between the sales charge previously paid
on the shares being exchanged and the sales charge payable on the shares being
acquired). Any such exchange is subject to any restrictions or qualifications
set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by the Transfer Agent provided the investor has
not disclaimed in writing the use of the privilege. To effect such exchanges,
call the Transfer Agent at 800-262-1122, 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 Transfer Agent
will be responsible for the authenticity of exchange instructions received by
telephone, provided that reasonable procedures to confirm that instructions
communicated are genuine have been followed. Telephone instructions will be tape
recorded. In times of drastic economic or market changes, a telephone exchange
may be difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to the Transfer Agent, First Data
Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 at any time
- -- whether or not dividends are reinvested. The name of the shareholder, the
Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "How to Buy Fund Shares --
Statement of Intention and Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges when the
current market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Shares of the Eaton Vance funds listed under
"The Eaton Vance Exchange Privilege" may be combined under the Statement of
Intention and Right of Accumulation.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required. The maintenance of a withdrawal plan
concurrently with purchases of additional shares would be disadvantageous
because of the sales charge included in such purchases.
REINVESTMENT PRIVILEGE: A shareholder who has redeemed shares may reinvest at
net asset value any portion or all of the redemption proceeds (plus that amount
necessary to acquire a fractional share to round off the purchase to the nearest
full share) in shares of a Fund, or, provided that the shares redeemed have been
held for at least 60 days, in shares of any of the other funds offered by the
Principal Underwriter subject to an initial sales charge, provided that the
reinvestment is effected within 60 days after such redemption, and the privilege
has not been used more than once in the prior 12 months. Shares are sold to a
reinvesting shareholder at the next determined net asset value following timely
receipt of a written purchase order by the Principal Underwriter or by the fund
the shares of which are being purchased (or by such fund's transfer agent). The
privilege is also available to shareholders of the funds listed under "The Eaton
Vance Exchange Privilege" who wish to reinvest such redemption or repurchase
proceeds in shares of a Fund. If a shareholder reinvests redemption proceeds
within the 60-day period, the shareholder's account will be credited with the
amount of any CDSC paid on such redeemed shares. To the extent that any shares
of the Fund are sold at a loss and the proceeds are reinvested in shares of the
Fund (or other shares of the Fund are acquired within the period beginning 30
days before and ending 30 days after the date of the redemption) some or all of
the loss generally will not be allowed as a tax deduction. Shareholders should
consult their tax advisers concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO (LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES) WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the last day of each month or the
next business day thereafter. Each Fund anticipates that for tax purposes the
entire distribution, whether paid in cash or reinvested in additional shares of
the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the day that
collected funds for the purchase of Fund shares are available at the Transfer
Agent. Shareholders of a Fund will receive timely federal income tax information
as to the tax-exempt or taxable status of all distributions made by the Fund
during the calendar year. A Fund's net realized capital gains, if any, consist
of the net realized capital gains allocated to the Fund by its corresponding
Portfolio for tax purposes, after taking into account any available capital loss
carryovers; a Fund's net realized capital gains, if any, will be distributed at
least once a year, usually in December.
Sales charges paid upon a purchase of Fund shares cannot be taken into account
for purposes of determining gain or loss on a redemption or exchange of the
shares before the 91st day after their purchase to the extent a sales charge is
reduced or eliminated in a subsequent acquisition of shares of a Fund or of
another fund pursuant to a Fund's reinvestment or exchange privilege. Any
disregarded amounts will result in an adjustment to the shareholder's tax basis
in some or all of any other shares acquired.
Each Fund intends to qualify as a regulated investment company under the Code,
and to satisfy all requirements necessary to be relieved of federal taxes on
income and gains it distributes to shareholders. In satisfying these
requirements, each Fund will treat itself as owning its proportionate share of
each of its corresponding Portfolio's assets and as entitled to the income of
the Portfolio properly attributable to such share.
As a regulated investment company under the Code, each Fund does not pay federal
income or excise taxes to the extent that it distributes to shareholders its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code. As partnerships under the Code, the Portfolios
do not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. If shares are purchased
shortly before the record date of such a distribution, the shareholder will pay
the full price for the shares and then receive some portion of the price back as
a taxable distribution. 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 with their tax advisers concerning the applicability
of state, local and other taxes to an investment in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share of the Fund on the last day of the period and annualizing the
resulting figure. A taxable-equivalent yield is computed by using the tax-exempt
yield figure and dividing by 1 minus the tax rate. Each Fund's average annual
total return is determined by computing the average annual percentage change in
value of $1,000 invested at the maximum public offering price (which includes
the maximum sales charge) for specified periods, assuming reinvestment of all
distributions. Each Fund may publish annual and cumulative total return figures
from time to time. Each Fund may also quote total return for the period prior to
commencement of operations which would reflect the Portfolio's total return (or
that of its predecessor) adjusted to reflect any applicable Fund sales charge.
Each Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a Fund's net asset value per share would be lower if a sales charge
were taken into account. The Fund's performance may be compared in publications
to the performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of the Fund's current yield or total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's yield or total return may be in any future period. If
the expenses of the Fund or its corresponding Portfolio are allocated to Eaton
Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there can
be no assurance that particular bond issues may not be adversely affected by
changes in economic, political or other conditions. Unless stated otherwise, the
ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
ALABAMA. Since the early 1980's, modernization of existing facilities and an
increase in direct foreign investments in the State have made the State's
manufacturing sector more competitive in domestic and international markets.
Although it remains the largest employment sector, the State economy has become
less dependent on manufacturing (pulp and paper, mining and chemicals). Strong
growth in the service and wholesale/retail trade sectors combined with recent
weakness in the manufacturing sector has enabled the economy to become more
diverse. However, its reliance on the manufacturing sector remains significantly
greater than the national average. In the past several years, the loss of
manufacturing jobs has been primarily as a result of weakness in the durable
goods sector. Overall, non-agricultural employment has steadily grown during the
past five years. The seasonally adjusted unemployment rate for August, 1996, was
4.5% compared to the national rate of 5.1%.
Alabama general obligations are currently rated AA, Aa and AA, by S&P, Moody's
and Fitch, respectively.
ALABAMA TAXES. In the opinion of Bradley, Arant, Rose & White, special Alabama
tax counsel to the Alabama Fund, under existing Alabama law, as long as the
Alabama Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Alabama Fund is invested in the Alabama Portfolio, and
provided that the Alabama Portfolio is invested in obligations the interest on
which would be exempt from Alabama personal income taxes if held directly by an
individual shareholder (such as obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions of
the United States), and further provided that the Alabama Portfolio is
characterized as a partnership for Federal income tax purposes, dividends
received by shareholders from the Alabama Fund that represent interest received
by the Alabama Portfolio on such obligations will be exempt from Alabama
personal income taxes. To the extent that distributions by the Alabama Fund are
derived from long-term or short-term capital gains on such obligations, or from
dividends or capital gains on other types of obligations, such distributions
will not be exempt from Alabama personal income tax. Capital gains or losses
realized from a redemption, sale or exchange of shares of the Alabama Fund by an
Alabama resident will be taken into account for Alabama personal income tax
purposes.
ARKANSAS. Arkansas has a relative diverse economy. The economy consists
primarily of manufacturing (25%) involving more sophisticated processes and
products such as electrical machinery, transportation equipment, fabricated
metals and electronics. The health services, wholesale/retail trade and service
sectors have also grown in recent years. The diversification of economic
interests has lessened the State's cyclical sensitivity to the impact of any
single sector. Agriculture, however, continues to be an important component of
the State's economy. In addition, the State has significant natural gas and oil
producing interests, as well as mining activities. The seasonally adjusted
unemployment rate for August, 1996 was 5.2%, compared to a national rate of
5.1%. State law prohibits deficit spending. In 1995, the General Fund had an
ending balance of $1.2 billion, with an operating surplus of $195 million.
Arkansas general obligation bonds are rated Aa and AA by Moody's and S&P. Fitch
does not currently rate Arkansas general obligations.
ARKANSAS TAXES. In the opinion of special Arkansas tax counsel, under Arkansas
law, as long as the Arkansas Fund qualifies as a separate "regulated investment
company" under the Code, and provided the Fund is invested in obligations the
interest on which would be exempt from Arkansas personal income taxes if held
directly by an individual shareholder (such as obligations of Arkansas or its
political subdivisions, of the United States or of certain territories or
possessions of the United States), dividends received from the Arkansas Fund
that represent interest received by the Arkansas Fund on such obligations will
be exempt from Arkansas personal income taxes. To the extent that distributions
by the Arkansas Fund are derived from long-term or short-term capital gains on
such obligations, or from dividends or capital gains on other types of
obligations, such distributions will not be exempt from Arkansas personal income
tax. The opinion addresses the tax consequences when the Arkansas Fund invests
directly in these obligations. The application of these consequences to the
Arkansas Fund when investing in interests of another registered investment
company was the subject of a favorable opinion from Revenue Counsel for the
Arkansas Department of Finance and Administration for a similar Eaton Vance fund
obtained when the Portfolio commenced operations.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Arkansas Fund by an Arkansas resident will be taken into account for
Arkansas personal income tax purposes.
GEORGIA. Georgia has a generally sound, well-diversified economy, which has
performed relatively well during recent years. The unemployment rate of the
civilian labor force in the State as of August 1996 was 4.4% compared to 5.1%
for the nation. Actual revenues of the State for fiscal year 1995 increased
10.5% over revenue collections for the previous fiscal year. Total projected
revenues for fiscal year 1996 are approximately $10.7 million, a 7.2% increase
over the total projected revenues for fiscal year 1995. The State economy
received a boost from economic activity associated with the 1996 Summer
Olympics. The fiscal 1996 budget includes approximately $76,663,963 to help
Georgians recover from the 1994 summer flooding and tropical storm disasters
which is not likely to affect the market value of Georgia obligations or the
ability of the State or its instrumentalities to pay interest and repay
principal on Georgia obligations in a timely manner.
Georgia general obligations are rated "AA+," "Aaa" and "AAA" by S&P, Moody's and
Fitch, respectively. Fitch views the rating as stable and S&P has a positive
outlook.
GEORGIA TAXES. In the opinion of Powell, Goldstein, Frazer & Murphy, special tax
counsel to the Georgia Fund, under existing law, shareholders who are otherwise
subject to the Georgia personal or corporate income tax will not be subject to
Georgia income tax on distributions with respect to shares of the Georgia Fund
to the extent such distributions represent "exempt-interest dividends" for
Federal income tax purposes that are attributable to interest on obligations
issued by or on behalf of the State of Georgia or its political subdivisions,
and by the governments of Puerto Rico, the U.S. Virgin Islands and Guam to the
extent that such obligations are exempt from State income tax pursuant to
Federal law. Distributions, if any, derived from capital gain or other sources
generally will be taxable to such shareholders of the Georgia Fund for Georgia
income tax purposes. Shareholders who are subject to the Georgia corporate net
worth a franchise tax that is based on net worth, will be subject to such tax
with respect to ownership of shares of the Georgia Fund and distributions with
respect thereto.
The Georgia Legislature repealed the Georgia Intangible Personal Property Tax on
March 21, 1996, effective retroactive to January 1, 1996, subject to approval by
Georgia's voters. On November 5, 1996, Georgia's voters ratified the legislation
repealing the Georgia Intangible Personal Property Tax. Thus, shares of the
Georgia Fund are no longer subject to Georgia Intangible Personal Property
Taxation effective for taxable years beginning on or after January 1, 1996.
KENTUCKY. Calendar year 1995 marked the third consecutive year that Kentucky has
outpaced the nation in terms of per capita income growth and lower unemployment
rates. Kentucky's per capita income growth rate for 1995 was 5.2% versus the
U.S. growth rate of 5.0%. As of August, 1996, Kentucky's unemployment rate was
4.5% compared to the national average of 5.1%. During 1995, the manufacturing
sector gained 8,600 jobs or 2.8%. The trade and service sectors recorded
employment gains of 16,300 and 13,600, respectively. The State relies on
manufacturing and mining for a greater portion of its employment than does the
rest of the nation. General Electric, Fruit of the Loom and Ford Motor are the
three largest manufacturing employers. The automobile industry has become an
important component of the economy. Toyota and General Motors have assembly
facilities in the State.
The Commonwealth of Kentucky's financial condition has steadily improved during
the last four years. State General Fund revenue grew by 3.5% in the fiscal year
1996 to a total of $5.34 billion. To avoid the need for state budget cuts in the
event revenues do not meet expectations, a Budget Reserve Trust Fund was
established with a $90 million deposit in fiscal year 1994 and has been
increased by additional deposits of $10 million in fiscal year 1995 and $100
million in fiscal year 1996 to a current balance of $200 million.
Because the Kentucky Constitution requires a vote of a majority of the
electorate to approve the issuance of State general obligation indebtedness,
none of the outstanding indebtedness of the Commonwealth of Kentucky is general
obligation indebtedness but instead is either debt payable only from revenues
produced by the particular project or lease revenue indebtedness subject to
legislative appropriation for the payment of debt service during each fiscal
biennium of the Commonwealth.
As of the date of this Prospectus the State's appropriation-backed debt is rated
A+, A and A+ by S&P, Moody's and Fitch, respectively.
KENTUCKY TAXES. In the opinion of Wyatt, Tarrant & Combs, special Kentucky tax
counsel to the Kentucky Fund, shareholders of the Kentucky Fund who otherwise
are subject to individual or corporate income taxes of the Commonwealth of
Kentucky will not be subject to such taxes on distributions with respect to
their shares in the Kentucky Fund to the extent that such distributions are
attributable to interest on obligations of the Commonwealth of Kentucky or its
political subdivisions, obligations of the United States, obligations of the
government of Puerto Rico, the U.S. Virgin Islands or Guam. To the extent that
distributions from the Kentucky Fund are included in a corporate shareholder's
surplus, they will be subject to the Kentucky license (franchise) tax that is
based on capital employed. To the extent that the Kentucky Portfolio's holdings
consist of obligations of the Commonwealth of Kentucky or its political
subdivisions or instrumentalities and the balance are obligations of the United
States, shares in the Kentucky Fund will be exempt from the Kentucky Intangibles
Tax. Shareholders will be required to include the entire amount of capital gain
dividends in income to the same extent for state income tax purposes as for
Federal income tax purposes.
Many local governments in Kentucky, including Louisville, Jefferson County,
Lexington-Fayette Urban County, Bowling Green and Covington, impose taxes on the
net profits of businesses operating (in any form, including sole
proprietorships) within the local jurisdiction. Such taxes should not be imposed
on income derived from an investment in the Kentucky Fund. However, because of
differences in the provisions of the local ordinances, it is not possible to
address their specific impact.
LOUISIANA. The State has experienced operating budget deficits in three of the
last seven fiscal years. Since 1988, the gap between General Fund expenditures
and recurring revenues has widened for a variety of reasons: new expenditures
have been phased in; new tax exemptions have been implemented; the federal
government has issued costly mandates, most significantly in the Medicaid
program; and revenues once available to the General Fund have in recent years
been dedicated for specific purposes. Furthermore, the State's tax base (which
is comprised in part of mineral revenues and volume-based taxes, such as those
on tobacco, beer, and liquor) is inherently inelastic, i.e., its nominal growth
rate does not match or exceed the growth rate of the economy.
During 1994, $30.6 million of the surplus funds were utilized to cover known
shortfalls in current year program operations. The State ended the fiscal period
1993-94 with an operating surplus of $129 million. This amount together with the
prior year fund balance of $101 million and reserve changes leaves an
unreserved-undesignated General Fund fund balance of $212.9 million. The new
administration needs to address several budgetary issues in order to resolve its
fiscal challenges. It is uncertain how these issues will be resolved or how it
will impact the creditworthiness of the State and its outstanding and related
debt. For fiscal 1996, the State expects to finish with a balanced budget
despite these budgetary issues including concerns relating to its Medicaid
program.
As of the date of this Prospectus, general obligations of Louisiana are rated A-
and Baa1 by S&P and Moody's, respectively.
LOUISIANA TAXES. In the opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P., special Louisiana tax counsel to the Louisiana Fund, under
existing Louisiana law as long as: (i) the Louisiana Fund qualifies as a
separate "regulated investment company" under the Code; (ii) the Louisiana
Portfolio will be treated as a partnership for federal and state tax purposes;
and (iii) the Louisiana Fund receives income from obligations, the interest on
which would be exempt from Louisiana individual and corporate income taxes if
held directly by an individual shareholder (such as obligations of Louisiana or
its political subdivisions, of the United States or of certain territories or
possessions of the United States), the dividends received from the Louisiana
Fund that represent interest received by the Louisiana Fund on such obligations
will be exempt from Louisiana individual and corporate income taxes. To the
extent that distributions by the Louisiana Fund are derived from long-term or
short-term capital gains on such obligations, or from dividends or capital gains
on other types of obligations, such distributions will not be exempt from
Louisiana individual and corporate income taxes.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Louisiana Fund by a Louisiana resident will be taken into account for
Louisiana individual and corporate income tax purposes. Distributions from and
investments in the Louisiana Fund by corporate shareholders who are otherwise
subject to the Louisiana corporate franchise tax will be included in the capital
of such corporations for Louisiana franchise tax purposes.
MARYLAND. Maryland has a diverse economy with government, services and mining,
and manufacturing and trade each accounting for approximately 20%, 31% and 32%
of employment, respectively. In recent years financial operations of the State
have concluded in ending surpluses, although in the early 1990s various cost
containment and tax revenue measures were required. State revenues are largely
dependent on income and sales and use taxes and, relatedly, on general levels of
employment, personal income growth and consumer spending. The national slowdown,
beginning in 1990, impacted the State with total employment declining slightly
in the early 1990s but recovering commencing in 1992. Unemployment in Maryland
for August 1996 was 4.7% versus the national rate of 5.1%.
Generally, Maryland has been among the most heavily indebted of the states. In
recent years increases in State general obligation debt have been controlled.
Since 1991, State tax-supported debt service and debt outstanding have been less
than 3.07% of personal income and 6.74% of State revenues, respectively.
Including local government debt, debt service as a percentage of total revenues
has risen from 8.88% in 1991 to 9.67% in 1994. It should be noted that the
creditworthiness of obligations issued by local Maryland issuers and State
revenue obligations may vary considerably from the creditworthiness of general
obligation bonds issued by the State, and that there is no obligation on the
part of the State to make payment on such local obligations in the event of
default.
The State of Maryland's general obligation bonds are rated AAA, Aaa and AAA, by
S&P, Moody's and Fitch, respectively. Both S&P and Fitch have a stable outlook
for the State.
MARYLAND TAXES. In the opinion of Piper & Marbury, L.L.P., special Maryland tax
counsel to the Maryland Fund, so long as the Maryland Fund qualifies to be taxed
as a regulated investment company in the manner set forth in Section 852 (b) of
the Code holders of the Maryland Fund who are individuals, estates or trusts and
who are otherwise subject to Maryland State and local individual income taxes
will not be subject to such taxes on Maryland Fund dividends to the extent that
(a) such dividends qualify as exempt-interest dividends of a regulated
investment company under Section 852(b)(5) of the Code, which are attributable
to interest on tax-exempt obligations of the State of Maryland or its political
subdivisions or authorities, or obligations issued by the government of Puerto
Rico, U.S. Virgin Islands or Guam or their authorities ("Maryland tax-exempt
obligations"), (b) such dividends are attributable to interest on obligations of
the U.S. Government or obligations issued or guaranteed by the U.S. Government
and its agencies, instrumentalities and authorities ("U.S. obligations") or (c)
such dividends are attributable to gain realized by the Maryland Fund as a
result of the sale or exchange by the Maryland Portfolio of a bond issued by the
State of Maryland or a political subdivision thereof.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland State and local individual income
taxes.
Maryland presently includes in Maryland taxable income a portion of certain
items of tax preferences as defined in the Code. Interest paid on certain
private activity bonds constitutes such a tax preference. Accordingly, up to 50%
of any distributions of the Maryland Fund attributable to such private activity
bonds (other than private activity bonds issued by the State of Maryland, its
political subdivision, or authorities) may not be exempt from Maryland State and
local individual income taxes. The Maryland Portfolio has no present intention
of investing in such securities.
Shareholders of the Maryland Fund that are corporations otherwise subject to
Maryland corporate income tax will not be subject to such tax on Maryland Fund
dividends to the extent that (a) such dividends qualify as exempt-interest
dividends under Section 852(b)(5) of the Code which are attributable to Maryland
tax-exempt obligations, (b) such dividends are attributable to interest on U.S.
obligations or (c) such dividends are attributable to gain realized by the
Maryland Fund as a result of the sale or exchange by the Maryland Portfolio of a
bond issue by the State of Maryland or a political subdivision thereof.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland corporate income tax.
Shareholders of the Maryland Fund that are financial institutions otherwise
subject to Maryland financial institution franchise taxes will probably be
subject to such taxes on all distributions received from the Maryland Fund
(including exempt-interest dividends).
Interest on indebtedness incurred or continued (directly or indirectly) by a
shareholder of the Maryland Fund to purchase or carry shares of the Maryland
Fund will not be deductible for Maryland State and local individual income tax
purposes or corporate income tax purposes to the extent such interest is
allocable to exempt-interest dividends.
Shares of the Maryland Fund will not be subject to the Maryland personal
property tax.
MISSOURI. The State has a well balanced economy that approximates the national
economy. As a result, the State unemployment rate has typically remained close
to the national average. The civilian unemployment rate for August, 1996 was
3.9% as compared to the August 1995 level of 5.0%. During the past several
years, the local defense and automotive industries have experienced weakness
partially contributing to the loss of 64,000 manufacturing jobs.
In the early 1990s, the State had operating deficits resulting from lower
collections than budgeted due to the recession. The State's financial operations
have been pressured by the cost associated with the settlement of the
desegregation lawsuit involving the Kansas City and St. Louis school districts.
For fiscal 1995, the cost of the settlement was $315 million, approximately 7%
of the General Fund budget. A recent Supreme Court decision favorable to the
State may decrease the level of State funding required in the future, but the
impact of this decision is uncertain. Economic reversals in either of the Kansas
City or St. Louis metropolitan areas, whose Missouri portions together contain
approximately half of the State's population, would have a major impact on the
State's overall economic condition.
An amendment to the State Constitution limits the amount of state taxes which
may be imposed by the General Assembly, as well as the amount of local taxes,
licenses and fees which can be imposed by local governments in any fiscal year.
The details of the amendment are complex and clarification by subsequent
legislation or judicial decision may be necessary.
As of the date of this Prospectus, Missouri's general obligation of debt is
rated AAA, Aaa and AAA, by S&P, Moody's and Fitch, respectively.
MISSOURI TAXES. In the opinion of Bryan Cave, LLP, special Missouri tax counsel
to the Missouri Fund, so long as the Missouri Fund qualifies for Federal income
taxation as a regulated investment company and the Missouri Portfolio is treated
as a partnership for Federal tax purposes, dividends distributed to individual
shareholders of the Missouri Fund will be exempt from the Missouri personal
income tax imposed by Chapter 143 of the Missouri Revised Statutes to the extent
that such dividends qualify as exempt interest dividends of a regulated
investment company under Section 852(b)(5) of the Code and are derived form
interest on obligations of the United States, its authorities, commissions,
instrumentalities, possessions or territories to the extent exempt from Missouri
income taxes under the laws of the United States (including Puerto Rico, Guam
and the U.S. Virgin Islands), or of the State of Missouri or its political
subdivisions. Capital gain dividends, as defined in Section 852(b)(3) of the
Code, distributable by the Missouri Fund to individual resident shareholders of
the Missouri Fund, to the extent includable in Federal adjusted gross income,
will be subject to Missouri income taxation. Shares in the Missouri Fund are not
subject to Missouri personal property taxes.
The Missouri Fund will notify its shareholders within 60 days after the close of
the year as to the amount of interest dividend from Missouri obligations which
is exempt from Missouri personal income taxation.
NORTH CAROLINA. The current economic profile of the State consists of a
combination of industry, agriculture and tourism. Tobacco production, which had
been the leading source of agricultural income in the State, declined in 1995.
Tobacco farming in the State has been and is expected to continue to be affected
by major federal legislation and regulatory measures regarding tobacco
production and marketing and by international competition.
The North Carolina constitution requires that the total expenditures of the
State for the fiscal period covered by each budget not exceed the total of
receipts during the fiscal period and the surplus remaining in the State
Treasury at the beginning of the period. As a result of new taxes, fees and
spending reductions, the State has had a budget surplus since 1994. As of
November, 1996, the amount of uncommitted funds of the State was $586 million.
Fiscal year 1995 ended with a $114 million surplus and a general fund of $1.0
billion. For 1996, revenues were $125 million ahead of budget.
General obligations of the State of North Carolina are rated Aaa, AA and AAA by
Moody's, S&P and Fitch, respectively. Fitch and S&P view the State's credit
trend as "Stable".
NORTH CAROLINA TAXES. In the opinion of Hunton & Williams, special North
Carolina tax counsel to the North Carolina Fund, distributions from the North
Carolina Fund will not be subject to North Carolina individual, trust, or estate
income taxation to the extent that such distributions are either (i) excluded
from federal gross income and represent interest the North Carolina Fund, either
directly or through the North Carolina Portfolio, receives on obligations of
North Carolina or its political subdivisions, nonprofit educational institutions
organized or chartered under the laws of North Carolina, or Puerto Rico, U.S.
Virgin Islands, or Guam or (ii) represent interest the North Carolina Fund,
either directly or through the Portfolio, receives on direct obligations of the
United States. These North Carolina income tax exemptions will be available only
if the North Carolina Fund complies with the requirement of the Code that at
least 50% of the value of its assets at the close of each quarter of its taxable
years is invested, either directly or through the North Carolina Portfolio, in
state, municipal, or other obligations described in (S)103(a) of the Code. The
North Carolina Fund intends to comply with that requirement. In 1995, the North
Carolina General Assembly repealed, effective for taxable years beginning
January 1, 1995, the tax levied on various forms of intangible personal
property. The legislature provided from specific appropriations to counties and
municipalities to replace the revenues previously received for the intangibles
tax.
Any capital gains distributed by the North Carolina Fund (except for capital
gain attributable to the sale by the North Carolina Fund or the North Carolina
Portfolio of an obligation the profit from which is exempt by North Carolina
statute) or gains realized by the shareholder from a redemption or sale of
shares of the North Carolina Fund will be subject to North Carolina individual,
trust, or estate income taxation.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the North Carolina Fund to purchase or carry shares of the North Carolina Fund
generally will not be deductible for North Carolina income tax purposes.
The opinion of Hunton & Williams is based on a ruling of the North Carolina
Department of Revenue obtained by Hunton & Williams on behalf of a fund
basically identical to the North Carolina Fund. That ruling is subject to
change.
OREGON. According to the September 1996 Oregon Economic and Revenue Forecast
prepared by the State Department of Administrative Services, Oregon's recent
strong growth is expected to slow over the next year, primarily due to a
softening of the State's housing markets, reductions in timber output and
employment, and weaker national demand for Oregon's manufactured products. A
risk to continued economic expansion is further weakness in the semiconductor
industry resulting from excess capacity in the industry. A strong international
export sector, further nonresidential construction activity and a steady stream
of immigration are expected to lead Oregon to outperform the national economy
for the next 5 years. This combination of forces is likely to generate growth,
although increases in personal income and employment are expected to be less
than they were in 1994. Oregon's seasonally adjusted unemployment rate for
August 1996, was 5.4%, compared to a national rate of 5.1%.
Oregon's general obligation debt is rated AA-, Aa and AAA, by S&P, Moody's and
Fitch, respectively.
OREGON TAXES. In the opinion of Stoel Rives LLP, special Oregon tax counsel to
the Oregon Fund, so long as the Oregon Fund qualifies to be taxed as a separate
"regulated investment company" under the Code and the Oregon Portfolio is
treated as a partnership (but not a "publicly traded partnership") under the
Code, and so long as the Oregon Fund is deemed under the regulated investment
company provisions of the Code to own its proportionate share of the assets of
the Oregon Portfolio and to be entitled to the income of the Oregon Portfolio
attributable to that share, under existing Oregon law holders of the Oregon Fund
who are individuals, estates or trusts will not be subject to Oregon personal
income tax on Oregon Fund dividends to the extent that such dividends (i)
qualify as "exempt-interest dividends" of a regulated investment company under
the Code and (ii) are attributable to interest on tax-exempt obligations of the
State of Oregon or its political subdivisions or authorities, or obligations
issued by the Governments of Puerto Rico, U.S. Virgin Islands or Guam or their
authorities ("Oregon tax-exempt obligations").
To the extent that distributions of the Oregon Fund are attributable to certain
sources other than interest on Oregon tax-exempt obligations, including all
short-term and long-term capital gain and interest on tax-exempt obligations of
states other than Oregon and their political subdivisions and authorities, such
distributions will not be exempt from Oregon personal income tax for
individuals, estates or trusts otherwise subject to Oregon personal income tax.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Oregon Fund will be taken into account for Oregon personal income tax
purposes.
No portion of distributions from the Oregon Fund will be exempt from the Oregon
corporation excise tax, which generally applies to financial corporations
"located within" Oregon and other business corporations "doing or authorized to
do business within" Oregon. Oregon imposes a corporate income tax on
corporations not subject to the Oregon corporation excise tax. Corporations
subject to the Oregon corporation income tax should consult their tax advisors
regarding distributions from the Oregon Fund. Shares of the Oregon Fund will not
be subject to Oregon property tax.
SOUTH CAROLINA. After several years of budget short falls in the early 1990's,
South Carolina has nearly eliminated an accumulated unreserved fund balance
deficit. Fiscal year 1995 ended with a $222 million surplus and early estimates
of 1996 revenues indicate they are ahead of budget. South Carolina has
successfully passed balanced budgets without raising taxes.
Although dominated by the textile industry, South Carolina's economic base has
diversified in recent years as the trade and service sectors developed. With
increased added development in the durable goods manufacturing industries, South
Carolina's economy now resembles more closely that of the United States. For
August, 1996, unemployment in South Carolina was 5.9% compared with the national
rate of 5.1%.
South Carolina general obligations are rated Aaa, AA+ (positive), AAA (stable),
by Moody's, S&P and Fitch, respectively. South Carolina was upgraded by S&P from
AA+ to AAA in July, 1996.
SOUTH CAROLINA TAXES. Nelson Mullins Riley & Scarborough, L.L.P., special South
Carolina tax counsel to the South Carolina Fund, has obtained the issuance of a
private letter ruling from the South Carolina Department of Revenue and Taxation
(the "S.C. Tax Ruling"). The S.C. Tax Ruling provides that, under existing South
Carolina law, as long as the South Carolina Fund qualifies as a separate
"regulated investment company", shareholders of the South Carolina Fund will not
be required to include in their South Carolina gross income distributions from
the South Carolina Fund to the extent such distributions qualify as
"exempt-interest dividends" as defined in the Code, which are directly
attributable to interest received by the South Carolina Fund on tax-exempt
obligations issued by the State of South Carolina or its political subdivisions
or the United States. In the event the South Carolina Fund fails to qualify as a
separate "regulated investment company," the foregoing exemption may be
unavailable or substantially limited. The S.C. Tax Ruling addresses the South
Carolina tax consequences when the South Carolina Fund invests directly in these
obligations. In addition, the S.C. Tax Ruling favorably addresses consequences
to the South Carolina Fund, under existing South Carolina law, to the extent the
South Carolina Fund invests in interests of another registered investment
company.
Capital gains distributed by the South Carolina Fund, or gains realized by a
shareholder from a redemption or sale of shares of the South Carolina Fund, will
be subject to South Carolina income taxes.
As intangible personal property, the shares of the South Carolina Fund are
exempt from any and all ad valorem taxation in South Carolina.
TENNESSEE. Historically, the Tennessee economy has been characterized by a
greater concentration in manufacturing employment than the U.S. as a whole. The
economy is, however, undergoing a structural change through the increase in
service sector and trade sector employment. The service and trade sectors each
account for approximately 25% of employment, while manufacturing accounts for
about 23% of employment. The August, 1996 seasonally adjusted unemployment rate
was 4.4%.
Tennessee's financial operations are considerably different than most other
states because there is no state payroll income tax. This factor, together with
the State's reliance on the sales tax for a large percentage of General Fund
receipts, exposes total State tax collections to considerably more volatility
than would otherwise be the case and, in the event of an economic downswing,
could effect the State's ability to pay principal and interest in a timely
manner. Under the State constitution, no debt may be authorized for the current
operation of any State service or program unless repaid within the fiscal year
of issuance. For the fiscal year 1993, a 0.5% increase in the sales tax rate was
enacted and dedicated towards the implementation of certain educational reforms
enacted by the legislature. The General Fund was reduced by $66 million and $62
million in 1994 and 1995, respectively. Further fiscal weakness is expected in
1996 and it is uncertain at this time as to the effect this will have on the
creditworthiness of the State.
Tennessee's general obligation debt is rated AA+, Aaa and AAA, by S&P, Moody's
and Fitch, respectively. S&P has a positive outlook for the State.
TENNESSEE TAXES. In the opinion of Hunton & Williams, special Tennessee tax
counsel to the Tennessee Fund, individual shareholders of the Tennessee Fund
will not be subject to Tennessee individual income tax on distributions received
from the Tennessee Fund to the extent such distributions are attributable to
interest the Tennessee Fund, either directly or through the Tennessee Portfolio,
receives on (i) bonds or securities of the U.S. Government or any agency or
instrumentality thereof, (ii) bonds of the State of Tennessee or any county,
municipality or political subdivision thereof, including any agency, board,
authority or commission, or (iii) bonds of Puerto Rico, U.S. Virgin Islands or
Guam.
The opinion of Hunton & Williams is based on a ruling of the Tennessee
Department of Revenue obtained by Hunton & Williams on behalf of a fund
basically identical to the Tennessee Fund. That ruling is subject to change. The
Tennessee Fund will report annually to its shareholders the percentage and
source, on a state-by-state basis, of interest income received by the Tennessee
Fund on municipal bonds during the preceding year.
On March 16, 1994, the Tennessee Fund received a letter ruling from the
Department of Revenue of the State of Tennessee to the effect that distributions
of capital gains from the Tennessee Fund attributable to tax-exempt securities
are exempt from Tennessee income tax. Tennessee Fund management believes that
Eaton Vance is the only mutual fund sponsor that has obtained such a ruling. The
ruling is subject to change under certain conditions.
VIRGINIA. The Constitution of Virginia requires a balanced budget and limits the
ability of the Commonwealth to create debt. General obligation debt may be
incurred to meet short-term needs, to finance capital projects and, under less
stringent restrictions, to finance revenue-producing capital projects. Also,
"special fund" revenue bonds, to which the constitutional debt restrictions do
not apply and which are not supported by the full faith and credit of the
Commonwealth, may be issued to finance qualifying Commonwealth revenue projects.
General obligations of cities, towns and counties are payable from the general
revenues of the entity, including ad valorem tax revenues on property within the
jurisdiction. Revenue obligations issued by other entities are customarily
payable only from revenues from the particular project or projects involved. The
Commonwealth has maintained a high level of fiscal stability for many years due
in large part to conservative financial operations and diverse sources of
revenue. The budget for the 1994-96 biennium submitted by the Governor does not
contemplate any significant new taxes or increases in the scope or amount of
existing taxes.
The economy of Virginia is based primarily on manufacturing, the government
sectors, agriculture, mining and tourism, and unemployment rates are typically
below the national average. August 1996 unemployment was 4.4% versus a national
rate of 5.1%. The Commonwealth has a long history of fiscal stability, due in
large part to a conservative financial philosophy, broad-based employment
opportunities and diverse source of revenue. In the past decade, however, the
Commonwealth has experienced cycles of financial stringency. No significant new
taxes or increases were enacted by the General Assembly at the 1995 session.
As a result of litigation involving proceedings before the United States Supreme
Court, the Commonwealth may be obligated to refund tax payments made by federal
pensioners of up to $707.5 million. Legislation has been enacted to effect a
settlement of the litigation, a significant number of federal pensioners opted
out of the settlement, necessitating its reauthorization in 1995, and there can
be no assurance that it will result in release of the pensioners' claims and
dismissal of their lawsuits.
General obligations of Virginia are rated Aaa, AAA and AAA by Moody's, S&P and
Fitch, respectively.
VIRGINIA TAXES. In the opinion of Hunton & Williams, special Virginia tax
counsel to the Virginia Fund, under existing Virginia law, distributions from
the Virginia Fund will not be subject to Virginia individual, trust, estate, or
corporate income taxation to the extent that such distributions are either (i)
excluded from federal gross income and attributable to interest the Virginia
Fund, either directly or through the Virginia Portfolio, receives on obligations
of Virginia, its political subdivisions, or its instrumentalities, or Puerto
Rico, U.S. Virgin Islands, or Guam or (ii) attributable to interest the Virginia
Fund, either directly or through the Portfolio, receives on direct obligations
of the United States. These Virginia income tax exemptions will be available
only if the Virginia Fund complies with the requirement of the Code that at
least 50% of the value of its assets at the close of each quarter of its taxable
year is invested, either directly or through the Portfolio, in state, municipal,
or other obligations described in (S) 103(a) of the Code. The Virginia Fund
intends to comply with that requirement.
Other distributions from the Virginia Fund, including capital gains, generally
will not be exempt from Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry shares of the Virginia Fund generally will not be deductible
for Virginia income tax purposes.
Neither the Trust nor the Virginia Fund will be subject to any Virginia
intangible property tax on any obligations in the Virginia Portfolio. In
addition, shares of the Virginia Fund held for investment purposes will not be
subject to any Virginia intangible personal property tax.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Section
936 (a tax incentive that has encouraged economic growth in Puerto Rico) will be
phased out over a ten year period. At this time, it is uncertain as to the
implication the change will have on the Puerto Rico economy. Although the Puerto
Rico unemployment rate has declined substantially since 1985, the seasonally
adjusted unemployment rate for July, 1996 was approximately 14.1%. The North
American Free Trade Agreement (NAFTA), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P assigned
a negative outlook on Puerto Rico's rating on April 26, 1994 which was still in
place as of the date of this Prospectus.
<PAGE>
[logo]
EATON VANCE
============
Mutual Funds
EV TRADITIONAL
MUNICIPAL FUNDS
PROSPECTUS
JANUARY 1, 1997
EV TRADITIONAL ALABAMA MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND
EV TRADITIONAL MISSOURI MUNICIPALS FUND
EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL VIRGINIA MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-TFC1/1P
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1997
<TABLE>
EV MARATHON MUNICIPALS FUNDS
<S> <C>
EV MARATHON ALABAMA MUNICIPALS FUND EV MARATHON MISSOURI MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND EV MARATHON VIRGINIA MUNICIPALS FUND
</TABLE>
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund"), their
corresponding Portfolios and certain other series of Eaton Vance Municipals
Trust (the "Trust"). Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate, Part I includes cross-references
to the relevant sections of Part II. This Statement of Additional Information is
sometimes referred to herein as the "SAI".
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ............... 1
Investment Restrictions ........................................ 7
Trustees and Officers .......................................... 9
Investment Adviser and Administrator ........................... 10
Custodian ...................................................... 13
Service for Withdrawal ......................................... 14
Determination of Net Asset Value ............................... 14
Investment Performance ......................................... 14
Taxes .......................................................... 16
Principal Underwriter .......................................... 18
Distribution Plan .............................................. 19
Portfolio Security Transactions ................................ 21
Other Information .............................................. 22
Independent Certified Public Accountants ....................... 23
Financial Statements ........................................... 23
Appendix ....................................................... 25
PART II
EV Marathon Alabama Municipals Fund ............................ a-1
EV Marathon Arkansas Municipals Fund ........................... b-1
EV Marathon Georgia Municipals Fund ............................ c-1
EV Marathon Kentucky Municipals Fund ........................... d-1
EV Marathon Louisiana Municipals Fund .......................... e-1
EV Marathon Maryland Municipals Fund ........................... f-1
EV Marathon Missouri Municipals Fund ........................... g-1
EV Marathon North Carolina Municipals Fund ..................... h-1
EV Marathon Oregon Municipals Fund ............................. i-1
EV Marathon South Carolina Municipals Fund ..................... j-1
EV Marathon Tennessee Municipals Fund .......................... k-1
EV Marathon Virginia Municipals Fund ........................... l-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JANUARY 1, 1997, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS COMBINED STATEMENT
OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND
PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this SAI and not
otherwise defined have the meanings given them in the Fund's Prospectus. The
Fund is subject to the same investment policies as those of the Portfolio. The
Fund currently seeks to achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is exempt from federal income taxes and is not a tax preference item for
purposes of the federal alternative minimum tax: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential governmental
functions; (ii) certain obligations issued before August 8, 1986 for the benefit
of non-governmental persons or entities; and (iii) certain "private activity
bonds" issued after August 7, 1986 which include "qualified Section 501(c)(3)
bonds" or refundings of certain obligations included in the second category. In
assessing the federal income tax treatment of interest on any municipal
obligation, the Portfolio will generally rely on an opinion of the issuer's
counsel (when available) and will not undertake any independent verification of
the basis for the opinion. The two principal classifications of municipal bonds
are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the AMT. 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 AMT as applied to
corporations (to the extent not already included in alternative minimum taxable
income as income attributable to private activity bonds).
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than one
year) purchased after April 30, 1993 other than, in general, at their original
issue, is taxable as ordinary income. A long-term debt obligation is generally
treated as acquired at a market discount if purchased after its original issue
at a price less than (i) the stated principal amount payable at maturity, in the
case of an obligation that does have original issue discount or (ii) in the case
of an obligation that does have original issue discount, the sum of the issue
price and any original issue discount that accrued before the obligation was
purchased, subject to a de minimis exclusion.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds are in most cases revenue
bonds and are generally not secured by the taxing power of the municipality, but
are usually secured by the revenues derived by the authority from payments of
the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of the Investment Adviser) to evaluate or protect
any real estate, facilities or other assets securing any such obligation or
acquired by the Portfolio as a result of any such event, and the Portfolio may
also manage (or engage other persons to manage) or otherwise deal with any real
estate, facilities or other assets so acquired. The Portfolio anticipates that
real estate consulting and management services may be required with respect to
properties securing various municipal obligations in its portfolio or
subsequently acquired by the Portfolio. The Portfolio will incur additional
expenditures in taking protective action with respect to portfolio obligations
in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of such obligations will normally fluctuate with
changes in interest rates, and therefore the net asset value of the Portfolio
will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with the Portfolio's policy of concentrating its investments in
particular State issuers of municipal obligations, see "Risks of Concentration"
in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in industrial revenue
bonds might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state and local authorities. Since
the bonds are normally secured only by the revenues of each facility and not by
state or local government tax payments, they are subject to a wide variety of
risks. Primarily, the projects must maintain adequate occupancy levels to be
able to provide revenues sufficient to meet debt service payments. Moreover,
since a portion of housing, medical care and other services may be financed by
an initial deposit, it is important that the facility maintain adequate
financial reserves to secure estimated actuarial liabilities. The ability of
management to accurately forecast inflationary cost pressures is an important
factor in this process. The facilities may also be affected adversely by
regulatory cost restrictions applied to health care delivery in general,
particularly state regulations or changes in Medicare and Medicaid payments or
qualifications, or restrictions imposed by medical insurance companies. They may
also face competition from alternative health care or conventional housing
facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Accordingly, the Portfolio may be adversely affected by local political and
economic conditions and developments within Puerto Rico affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross domestic
product and is more diversified than during earlier phases of Puerto Rico's
industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and manufacturing
(16.4%). These three sectors represent 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
This decline was broad based among all manufacturing industries. The North
American Free Trade Agreement ("NAFTA"), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico. The February, 1995 unemployment rate was 12.5%, down from 16% for
1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the Federal government. Most Federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Code was amended and provided for two alternative limitations
to the Section 936 credit. The first option will limit the credit against such
income to 40% of the credit allowable under current law, with a five year
phase-in period starting at 60% of the allowable credit. The second option is a
wage and depreciation based credit. The reduction of the tax benefits to those
U.S. companies with operations in Puerto Rico may lead to slower growth in the
future. Furthermore, federal policymakers have proposed the total elimination of
Section 936, phased out over ten years, as a budget-balancing measure. There can
be no assurance that these modifications will not lead to a weakened economy, a
lower rating on Puerto Rico's debt or lower prices for Puerto Rican bonds that
may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. The measure was defeated, with 48.5% voting
to remain a Commonwealth, 46% voting for statehood and 4% voting for
independence. Retaining Commonwealth status will leave intact the current
relationship with the federal government. There can be no assurance that the
statehood issue will not be brought to a vote in the future. A successful
statehood vote in Puerto Rico would then require the U.S. Congress to ratify the
election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to 101,809
in 1990. The economy is heavily reliant on the tourism industry, with roughly
43% of non-agricultural employment in tourist-related trade and services. As of
June, 1996, unemployment stood at 4.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the Federal excise tax on
rum exports. Tax revenues rebated by the Federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
During this past hurricane season, several hurricanes caused extensive damage,
which has had a negative impact on revenue collections. There is currently no
rated, unenhanced Virgin Islands debt outstanding although there is unrated debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. Population, 133,000 in 1990, is up 26% from the 1980 census level. The
U.S. military is a key component of Guam's economy. The Federal government
directly comprises more than 10% of the employment base, with a substantial
component of the service sector to support these personnel. The Naval Air
Station, one of several U.S. military facilities on the island, has been slated
for closure by the Defense Base Closure and Realignment Committee; however, the
administration plans to use these facilities to expand the Island's commercial
airport. Guam is also heavily reliant on tourists, particularly the Japanese.
For 1995, the government realized a General Fund operating surplus. The
administration has taken steps to improve its financial position; however, there
are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated BBB by S&P with a negative outlook.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell and later purchase securities in anticipation of a
market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the same
time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of municipal obligations or
changes in the investment objectives of investors. Such trading may be expected
to increase the portfolio turnover rate, which may increase capital gains and
the expenses incurred in connection with such trading. The Portfolio anticipates
that its annual portfolio turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-issued"
basis, that is, delivery and payment for the securities normally taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the refinancing of an
issuer's outstanding indebtedness. Refunding contracts generally require the
issuer to sell and the Portfolio to buy such securities on a settlement date
that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. When the Portfolio commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the issuer
and changes in the level of interest rates (i.e., appreciation when interest
rates decline and depreciation when interest rates rise). Therefore, to the
extent that the Portfolio remains substantially fully invested at the same time
that it has purchased securities on a when-issued basis, there will be greater
fluctuations in the Portfolio's net asset value than if it solely set aside cash
to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 (the "1940 Act") and Rule 5b-2 thereunder. The Portfolio would
anticipate using these obligations as cash equivalents pending longer term
investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Longer term fixed-rate bonds may give the holder a right to
request redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long term
bonds (protecting to some degree against a rise in interest rates) while
providing greater opportunity than comparable intermediate term bonds, because
the Portfolio may retain the bond if interest rates decline. By acquiring these
kinds of obligations the Portfolio obtains the contractual right to require the
issuer of the security or some other person (other than a broker or dealer) to
purchase the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement with the seller or some
other person. Because this right is assignable with the security, which is
readily marketable and valued in the customary manner, the Portfolio will not
assign any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put or demand features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. 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. Securities lending involves administration expenses,
including finders' fees. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the Portfolio's total assets. The
Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities and (ii) futures
contracts on securities indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States exchange or
board of trade. The Portfolio will be required, in connection with transactions
in futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such futures
and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Portfolio from closing out
positions and limiting its losses.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price fluctuations
in securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases, when
it is economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the corresponding
purchase of securities. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Code for maintaining qualification of the Fund as a
regulated investment company for federal income tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENT
Transactions using when-issued securities, the lending of Portfolio
securities or futures contracts and options (other than options that the
Portfolio has purchased) expose the Portfolio to an obligation to another party.
The Portfolio will not enter into any such transactions unless it owns either
(1) an offsetting ("covered") position in securities or other options or futures
contracts or (2) cash or liquid securities with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. The
Portfolio will comply with SEC guidelines regarding cover for these instruments
and, if the guidelines so require, set aside cash or liquid securities in a
segregated account with its custodian in the prescribed amount. The securities
in the segregated account will be marked to market daily.
Assets used as cover or held in a segregated account cannot be sold while
the position requiring coverage or segregation is outstanding, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Portfolio's assets to segregated accounts or cover could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of the Fund present or
represented by proxy at a meeting if the holders of more than 50% of the shares
are present or represented at the meeting or (b) more than 50% of the shares of
the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance margin
in connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments. (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short, and unless not more than
25% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purposes of deferring realization of gain or loss for federal
income tax purposes); (c) invest more than 15% of net assets in investments
which are not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of the
Trust or the Portfolio, or its delegate, determines to be liquid; or (d)
purchase or retain in its portfolio any securities issued by an issuer any of
whose officers, directors, trustees or security holders is an officer or Trustee
of the Trust or the Portfolio or is a member, officer, director or trustee of
any investment adviser of the Trust or the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities of
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value).
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, other than a subsequent
rating change below investment grade made by a rating service, will not compel
the Fund or the Portfolio, as the case may be, to dispose of such security or
other asset. Where applicable and notwithstanding the foregoing, under normal
market conditions the Fund and the Portfolio must take actions necessary to
comply with the policy of investing at least 65% of total assets in a particular
State. Moreover, the Fund and Portfolio must always be in compliance with the
borrowing policy set forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), a wholly-owned subsidiary of
Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees who
are "interested persons" of the Trust, the Portfolio, BMR, Eaton Vance, EVC or
EV, as defined in the 1940 Act, by virtue of their affiliation with any one or
more of the Trust, the Portfolio, BMR, Eaton Vance, EVC or EV, are indicated by
an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (65), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Vice President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (61), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (61), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (53), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of
the Trust and the Portfolio on December 13, 1993.
ROBERT B. MACINTOSH (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV. Officer
of various investment companies managed by Eaton Vance or BMR. Mr. MacIntosh
was elected Vice President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (51), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (65), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (39), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Woodubury was elected Assistant Secretary on June 19,
1995.
For additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund, including administrative
services, transfer agency, custodial and fund accounting and distribution
services, and (ii) all other matters in which Eaton Vance or its affiliates has
any actual or potential conflict of interest with the Fund or its shareholders.
The Nominating Committee is comprised of four Trustees who are not
"interested persons" as that term is defined under the 1940 Act ("noninterested
Trustees"). The Committee has four-year staggered terms, with one member
rotating off the Committee to be replaced by another noninterested Trustee of
the Trust. The purpose of the Committee is to recommend to the Board nominees
for the position of noninterested Trustee and to assure that at least a majority
of the Board of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian and transfer agent of the Fund and of
the Portfolio.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred fees
invested by the Portfolio in the shares of one or more funds in the Eaton Vance
Family of Funds, and the amount paid to the Trustees under the Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Plan will have a negligible effect on the
Portfolio's assets, liabilities, and net income per share, and will not obligate
the Portfolio to retain the services of any Trustee or obligate the Portfolio to
pay any particular level of compensation to the Trustee. Neither the Portfolio
nor the Trust has a retirement plan for its Trustees.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of over $16 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to over 150 mutual funds,
individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Bombay. Together Eaton Vance and Lloyd George manage over
$18 billion in assets. Eaton Vance mutual funds are distributed by Eaton Vance
Distributors both within the United States and offshore.
Eaton Vance Distributors believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 10 limited maturity portfolios, which serve as
investment vehicles for over 100 mutual funds with varying pricing options. A
staff of 32 (including 9 portfolio managers and 9 credit specialists) is
responsible for the day-to-day management of over 3,500 issues in 47 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The investment philosophy of the municipal investment group is to:
seek value by avoiding unnecessary credit risk; build portfolios one security at
a time; and take a long-term approach to managing market risk. Over the
long-term, the group seeks to maximize tax-free income by keeping portfolios
fully invested (rather than trying to "time the market" for short-term results)
and reduce potential capital losses due to poor credit quality. Diligent and
continuing research and analysis are a critical component of the municipal
investment group's investment philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance tax-free
portfolios. For the identity of the Portfolio's portfolio manager, see the
Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR and the
portfolio manager of single-state, tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and any legal obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto, to the extent not covered by
insurance.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part
II.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others. The Agreement also
provides that BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under that Agreement,
in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the Fund,
Eaton Vance has been engaged to administer the Fund's affairs, subject to the
supervision of the Trustees of the Trust, and shall furnish for the use of the
Fund office space and all necessary office facilities, equipment and personnel
for administering the affairs of the Fund. For additional information about the
Administrator. See "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and any legal obligation of the Trust to indemnify its Trustees and
officers with respect thereto to the extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and
Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons and
John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is
vice chairman and Mr. Hawkes is president and chief executive officer of EVC,
BMR, Eaton Vance and EV. All of the issued and outstanding shares of Eaton
Vance and EV are owned by EVC. All of the issued and outstanding shares of BMR
are owned by Eaton Vance. All shares of the outstanding Voting Common Stock of
EVC are deposited in a Voting Trust which expires on December 31, 1997, the
Voting Trustees of which are Messrs. Clay, Gardner, Hawkes, Rowland and Thomas
E. Faust, Jr. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers or officers and Directors of EVC and EV. As
of January 1, 1997, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Faust owned 15% and 13%,
respectively, of such voting trust receipts. Mr. Otis is an officer of the
Trust and the Portfolio and is a member of the EVC, BMR, Eaton Vance and EV
organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy, O'Connor,
and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders, are officers of the
Trust and/or the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
EVC owns all of the stock of Energex Energy Corporation, which engages in
oil and gas exploration and development. In addition, Eaton Vance owns all the
stock of Northeast Properties, Inc., which is engaged in real estate investment.
EVC owns all the stock of Fulcrum Management, Inc., and MinVen Inc., which are
engaged in precious metal mining, venture investment and management. EVC also
owns 24% of the Class A shares of Lloyd George Management (B.V.I.) Limited, a
registered investment adviser. EVC, BMR, Eaton Vance and EV may also enter into
other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
CUSTODIAN
IBT acts as custodian for the Fund and the Portfolio. IBT has the custody of
all cash and securities representing the Fund's interest in the Portfolio, has
custody of all the Portfolio's assets, maintains the general ledger of the
Portfolio and the Fund and computes the daily net asset value of interests in
the Portfolio and the net asset value of shares of the Fund. In such capacity it
attends to details in connection with the sale, exchange, substitution, transfer
or other dealings with the Portfolio's investments, receives and disburses all
funds and performs various other ministerial duties upon receipt of proper
instructions from the Fund and the Portfolio. IBT charges fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by a
credit for cash balances of the particular investment company at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
particular investment company's average daily collected balances for the week.
Landon T. Clay, a Director of EVC and an officer, Trustee or Director of other
entities in the Eaton Vance organization, owns approximately 13% of the voting
stock of Investors Financial Services Corp., the holding company parent of IBT.
Management believes that such ownership does not create an affiliated person
relationship between the Fund or the Portfolio and IBT under the Investment
Company Act of 1940. For the custody fees that the Portfolio and the Fund paid
to IBT, see "Fees and Expenses" in the Fund's Part II.
IBT also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the Commission, for which
it receives a separate fee.
SERVICE FOR WITHDRAWAL
The Trust's Transfer Agent will send to the shareholder regular monthly or
quarterly payments of any permitted amount designated by the shareholder (see
"Eaton Vance Shareholder Services -- Withdrawal Plan" in the Fund's current
Prospectus) based upon the value of the shares held. The checks will be drawn
from share redemptions and hence, are a return of principal. Income dividends
and capital gains distributions in connection with withdrawal accounts will be
credited at net asset value as of the record date for each distribution.
Continued withdrawals in excess of current income will eventually use up
principal, particularly in a period of declining market prices. A shareholder
may not have a withdrawal plan in effect at the same time he or she has
authorized Bank Automated Investing or is otherwise making regular purchases of
Fund shares. The shareholder, the Transfer Agent or the Principal Underwriter
will be able to terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transation prices for most municipal obligations held by the Portfolio, and such
obligations, including those purchaed on a when-issued basis, will normally be
valued on the basis of valuations furnished by a pricing service. The pricing
services uses information with respect to transactions in bonds, quotations from
bond dealers, market transactions in comparable securities, various
relationships between securities, and yield to maturity in determining value.
Taxable obligations for which price quotations are readily available normally
will be valued at the mean between the latest available bid and asked prices.
Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by or at the direction of the Trustees of the
Portfolio. The Fund and the Portfolio will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interests in the Portfolio on
such prior day. Any additions or withdrawals for the current Portfolio Business
Day will then be recorded. Each investor's percentage of the aggregate interest
in the Portfolio will then be recomputed as a percentage equal to a fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the Portfolio Valuation Time on the prior Portfolio
Business Day plus or minus, as the case may be, the amount of the net additions
to or withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and distributions paid and
reinvested) for the stated period and annualizing the result. The calculation
assumes that all distributions are reinvested at net asset value on the
reinvestment dates during the period, a complete redemption of the investment
and the deduction of the CDSC at the end of the period. For further information
concerning the total return of the Fund, see "Performance Information" in the
Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing its net
investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) per share on the last day of the period
and annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for the
period with the resulting number being divided by the average daily number of
Fund shares outstanding and entitled to receive distributions during the period.
This yield figure does not reflect the deduction of any CDSC which are imposed
upon certain redemptions at the rates set forth under "How to Redeem Fund
Shares" in the Fund's current Prospectus. A taxable-equivalent yield is computed
by dividing the tax-exempt yield figure by 1 minus a stated rate. For the yield
and taxable equivalent yield of the Fund, see "Performance Information" in the
Fund's Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or the effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current net asset value per share. The Fund's
effective distribution rate is computed by dividing the distribution rate by the
ratio (the days in a year divided by the accrual days of the monthly period)
used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investor's should note that the
Fund's yield is calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond investing,
which may include comparative performance information, evaluations of Fund
performance, charts and/or illustrations prepared by independent sources (such
as Lipper Analytical Services, CDA/Wiesenberger and Morningstar, Inc.; The Bond
Buyer, the Federal Reserve Board or The Wall Street Journal). The Fund may also
refer in investor publications to Tax Freedom Day, as computed by the Tax
Foundation, Washington, DC 20005, to help illustrate the value of tax free
investing, as well as other tax-related information. Information, charts and
illustrations showing the effects of inflation and taxes (including their effect
on the dollar and the return on various investments) and compounding earnings,
may also be included in advertisements and materials furnished to present and
prospective investors.
Information about portfolio allocation and holdings of the Portfolio at a
particular date (including ratings assigned by independent ratings services such
as Moody's, S&P and Fitch) may be included in advertisements and other material
furnished to present and prospective shareholders. Such information may be
stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the tax equivalent
yield (or value) of the Fund to the after-tax yield (or value) of such other
investment vehicles. A bank certificate of deposit, unlike the Fund's shares,
pays a fixed rate of interest and entitles the depositor to receive the face
amount of the certificate of deposit at maturity. A bank money market deposit
account is a form of savings account which pays a variable rate of interest.
Unlike the Fund's shares, bank certificates of deposit and bank money market
deposit accounts are insured by the Federal Deposit Insurance Corporation. A
money market mutual fund is designed to maintain a constant value of $1.00 per
share and, thus, a money market fund's shares are subject to less price
fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
-- cost associated with aging parents;
-- funding a college education (including its actual and estimated cost);
-- health care expenses (including actual and projected expenses);
-- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
-- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth analysis by investment professionals; In addition, by investing in a
municipal bond fund instead of individual bonds, an investor can avoid dealing
with the complexities of the municipal bond market, while benefitting from the
market access and lower transactions costs enjoyed by municipal bond funds. Such
information may also suggest the appropriateness of the Fund as an investment
for certain types of investors such as: conservative investors who want higher
after-tax income, but are concerned about the potential volatility of long-term
bonds or bond funds; dual-income couples in a high tax bracket; and investors
with long-term municipal bonds or fund portfolios who are seeking
diversification.
The Fund may provide information about Eaton Vance, its affiliates and other
investment advisers to the funds in the Eaton Vance Family of Funds in sales
material or advertisements provided to investors or prospective investors. Such
material or advertisements may also provide information on the use of investment
professionals by such investors.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated, and intends to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains in accordance with
the timing requirements imposed by the Code, so as to avoid any federal income
or excise tax on the Fund. The Fund so qualified for its fiscal year ended
August 31, 1996. Because the Fund invests its assets in the Portfolio, the
Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax under Code Section
103(a). For purposes of applying this 50% requirement, the Fund will be deemed
to own its proportionate share of each of the assets of the Portfolio, and the
Portfolio currently intends to invest its assets in a manner such that the Fund
can meet this 50% requirement. Interest on certain municipal obligations is
treated as a tax preference item for purposes of the AMT. Shareholders of the
Fund are required to report tax-exempt interest on their federal income tax
returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of discount with respect to certain stripped municipal obligations or
their stripped coupons, and certain realized gains or income attributable to
accrued market discount. Any distributions by the Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the Portfolio and allocated to the Fund. Certain
distributions of the Fund declared in October, November or December and paid the
following January will be taxed to shareholders as if received on December 31 of
the year in which they are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC for federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain certifications required by the Internal Revenue Service, as well as
shareholders with respect to whom the Fund has received notification from the
Internal Revenue Service or a broker, may be subject to "backup" withholding of
federal income tax from the Fund's taxable dividends and distributions and the
proceeds of redemptions (including repurchases and exchanges), at a rate of 31%.
An individual's taxpayer identification number is generally his or her social
security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through Authorized Firms which have agreements with the Principal
Underwriter. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
The public offering price is the net asset value next computed after receipt
of the order, plus, where applicable, a variable percentage (sales charge)
depending upon the amount of purchase as indicated by the sales charge table set
forth in the Fund's current Prospectus (see "How to Buy Fund Shares"). Such
table is applicable to purchases of the Fund alone or in combination with
purchases of the other funds offered by the Principal Underwriter, made at a
single time by (i) an individual, or an individual, his spouse and their
children under the age of twenty-one, purchasing shares for his or their own
account, and (ii) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of Fund shares,
alone or in combination with purchases of any of the other funds offered by the
Principal Underwriter, through one dealer aggregating $50,000 or more made by
any of the persons enumerated above within a thirteen-month period starting with
the first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is merged
or consolidated with or acquired by the Fund. Normally no sales charges will be
paid in connection with an exchange of Fund shares for the assets of such
investment company. Shares may be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio or any
investment company for which Eaton Vance or BMR acts as investment adviser, any
investment advisory, agency, custodial or trust account managed or administered
by Eaton Vance or by any parent, subsidiary or other affiliate of Eaton Vance,
or any officer, director or employee of any parent, subsidiary or other
affiliate of Eaton Vance. The terms "officer," "director," "trustee," "general
partner" or "employee" as used in this paragraph include any such person's
spouse and minor children, and also retired officers, directors, trustees,
general partners and employees and their spouses and minor children. Shares of
the Fund may also be sold at net asset value to registered representatives and
employees of Authorized Firms and to the spouses and children under the age of
21 and beneficial accounts of such persons.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors and other selling literature and of advertising are borne by
the Principal Underwriter. The fees and expenses of qualifying and registering
and maintaining qualifications and registrations of the Fund and its shares
under federal and state securities laws are borne by the Fund. The Distribution
Agreement is renewable annually by the Board of Trustees of the Trust (including
a majority of its Trustees who are not interested persons of the Principal
Underwriter or the Trust), may be terminated on six months' notice by either
party and is automatically terminated upon assignment. The Principal Underwriter
distributes Fund shares on a "best efforts" basis under which it is required to
take and pay for only such shares as may be sold. The Principal Underwriter
allows Authorized Firms discounts from the applicable public offering price
which are alike for all Authorized Firms. The Principal Underwriter may allow,
upon notice to all Authorized Firms with whom it has agreements, discounts up to
the full sales charge during the periods specified in the notice. See "How to
Buy Fund Shares" in the Fund's current Prospectus for the discounts allowed to
Authorized Firms on the sale of Fund shares. During periods when the discount
includes the full sales charge, such Authorized Firms may be deemed to be
underwriters as that term is defined in the Securities Act of 1933. For the
amount of sales charges for sales of Fund shares paid to the Principal
Underwriter (and Authorized Firms), see "Fees and Expenses" in the Fund's Part
II.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
the Fund's Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the NASD
Rule. The purpose of the Plan is to compensate the Principal Underwriter for its
distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments made by its corresponding
Portfolio, the expenses of the Fund and of its corresponding Portfolio accrued
and allocated to the Fund on such day, income on portfolio investments of its
corresponding Portfolio accrued and allocated to the Fund on such day, and any
dividends and distributions declared on Fund shares. The Fund does not accrue
possible future payments as a liability of the Fund or reduce the Fund's current
net assets in respect of unknown amounts which may become payable under the Plan
in the future because the standards for accrual of such a liability under
accounting principles have not been satisfied.
The Plan provides that the Fund will receive all CDSCs 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.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of CDSCs 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 CDSCs will tend to reduce the time during
which there will exist Uncovered Distribution Charges of the Principal
Underwriter.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and CDSCs theretofore
paid or payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding Uncovered Distribution
Charges with respect to such day. The amount of outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC will be imposed (including redemptions involving exchanges of Fund
shares for shares of another fund in the Eaton Vance Marathon Group of Funds
which result in a reduction of Uncovered Distribution Charges), changes in the
level of the net assets of the Fund, and changes in the interest rate used in
the calculation of the distribution fee under the Plan.
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal Underwriter
and service fees to the Principal Underwriter and Authorized Firms which may be
equivalent, on an aggregate basis during any fiscal year of the Fund, to .95% of
the Fund's average daily net assets for such year. For the sales commission and
service fee payments made by the Fund and the outstanding Uncovered Distribution
Charges of the Principal Underwriter, see "Fees and Expenses -- Distribution
Plan" in the Fund's Part II of this SAI. The Fund believes that the combined
rate of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule 12b-1.
Although the Principal Underwriter will use its own funds (which may be borrowed
from banks) to pay sales commissions at the time of sale, it is anticipated that
the Eaton Vance organization will profit by reason of the operation of the Plan
through an increase in the Fund's assets (thereby increasing the advisory fee
payable to BMR by the Portfolio) resulting from sale of Fund shares and through
amounts paid to the Principal Underwriter, including CDSCs pursuant to the Plan.
The Eaton Vance organization may be considered to have realized a profit under
the Plan if at any point in time the aggregate amounts theretofore received by
the Principal Underwriter pursuant to the Plan and from CDSCs have exceeded the
total expenses theretofore incurred by such organization in distributing shares
of the Fund. Total expenses for this purpose will include an allocable portion
of the overhead costs of such organization and its branch offices, which costs
will include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and supplies,
literature and sales aids, interest expense, data processing fees, consulting
and temporary help costs, insurance, taxes other than income taxes, legal and
auditing expense and other miscellaneous overhead items. Overhead is calculated
and allocated for such purpose by the Eaton Vance organization in a manner
deemed equitable to the Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Trust who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of
the Trustees then in office, and the Distribution Agreement contains a similar
provision. The Plan and Distribution Agreement may be terminated at any time by
a vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund. The provisions of the Plan
relating to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Under the Plan the President
or a Vice President of the Trust shall provide to the Trustees for their review,
and the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which will benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the Principal Underwriter under the
Plan will compensate the Principal Underwriter for its services and expenses in
distributing shares of the Fund. Service fee payments made to the Principal
Underwriter and Authorized Firms under the Plan provide incentives to provide
continuing personal services to investors and the maintenance of shareholder
accounts. By providing incentives to the Principal Underwriter and Authorized
Firms, the Plan is expected to result in the maintenance of, and possible future
growth in, the assets of the Fund. Based on the foregoing and other relevant
factors, the Trustees have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Fund or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the NASD, which rule provides that no firm which
is a member of the Association shall favor or disfavor the distribution of
shares of any particular investment company or group of investment companies on
the basis of brokerage commissions received or expected by such firm from any
source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate in a manner it deems equitable portfolio security
transactions among the Portfolio and the portfolios of its other investment
accounts whenever decisions are made to purchase or sell securities by the
Portfolio and one or more of such other accounts simultaneously. In making such
allocations, the main factors to be considered are the respective investment
objectives of the Portfolio and such other accounts, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the opinions
of the persons responsible for recommending investments to the Portfolio and
such accounts. However, there may be instances when the Portfolio will not
participate in a securities transaction that is allocated among other accounts.
While this procedure could have a detrimental effect on the price or amount of
the securities available to the Portfolio from time to time, it is the opinion
of the Trustees of the Trust and the Portfolio that the benefits available from
the BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" and "EV" in the Fund's name and may use the words "Eaton
Vance" and "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The Portfolio's Declaration of Trust 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.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this SAI.
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolios listed below for the fiscal year ended August 31,
1996, as previously filed electronically with the Commission:
EV Marathon Alabama Municipals Fund
EV Marathon Arkansas Municipals Fund
EV Marathon Georgia Municipals Fund
EV Marathon Kentucky Municipals Fund
EV Marathon Louisiana Municipals Fund
EV Marathon Maryland Municipals Fund
EV Marathon Missouri Municipals Fund
EV Marathon North Carolina Municipals Fund
EV Marathon Oregon Municipals Fund
EV Marathon South Carolina Municipals Fund
EV Marathon Tennessee Municipals Fund
EV Marathon Virginia Municipals Fund
(Accession No. 0000950135-96-005156)
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
- ----------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON ALABAMA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Alabama State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Alabama Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Alabama considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Alabama issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Alabama issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Alabama's business cycle is closely related to the national economy, due to
its manufacturing based economy. The State's economy has changed little in the
past few years. Growth in machinery, aerospace and electronic manufacturing have
become increasingly important to the State. The present movement toward
diversification of the State's manufacturing base and a similar trend toward
enlargement and diversification of the service industries are expected to lead
to increased stability. With its strong natural gas and oil deposits, Alabama is
well positioned in energy markets. An important factor affecting the economy is
the State owned Port of Mobile which primarily handles coal exports and serves
as a major Gulf Coast port. The Port of Mobile is one of the nation's busiest
ports in tons of cargo handled.
Although manufacturing remains the largest employment sector, the State
economy has become less dependent on manufacturing. Strong growth in the service
and wholesale/retail trade sectors combined with a weakening manufacturing
sector has enabled the economy to become more diverse. However, its reliance on
the manufacturing sector remains significantly greater than the national
average. In the past several years, the loss of manufacturing jobs has been
primarily as a result of weakness in the durable good sector. Overall,
non-agricultural employment has steadily grown during the past five years.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $108,543,550. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$455,711 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $466,320 (equivalent to 0.40% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $373,047 (equivalent to 0.38% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $156,301 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $805,078 and the Principal Underwriter
received approximately $363,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $3,631,000 (which amount was
equivalent to 3.6% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $188,442, of which $187,873 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal years ended August 31, 1996, the Fund paid the Principal
Underwriter $1,152.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996 and 1995, and for the eleven
months ended August 31, 1994, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight .......... $687 $1,542(2) $142,500(4)
Samuel L. Hayes, III ...... 632 1,687(3) 153,750(5)
Norton H. Reamer .......... 628 1,645 142,500
John L. Thorndike ......... 636 1,729 147,500
Jack L. Treynor ........... 681 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) is a Vice President
of the Portfolio. Mr. Browse has served as a Vice President of the Portfolio
since June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse is an
officer of various investment companies managed by Eaton Vance or BMR. Prior
to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader at Fidelity
Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from May 1, 1992 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 5/1/92* $1,000 $1,303.02 $1,283.02 30.30% 6.29% 28.30% 5.91%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,048.51 $ 998.51 4.85% 4.85% -0.15% -0.15%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on May 1, 1992.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.82%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.82% would be 6.99%, assuming a
combined federal and State tax rate of 34.45%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 35.0% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Alabama Tax Free Fund to EV
Marathon Alabama Tax Free Fund on February 1, 1994 and EV Marathon Alabama
Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Alabama State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND ALABAMA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------- -------------------- AL STATE --------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------- --------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 31.60% 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 58,151-$121,300 $ 96,901-$147,700 34.45% 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$121,301-$263,750 $147,701-$263,750 39.20% 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $263,750 Over $263,750 42.62% 6.97 7.84 8.71 9.59 10.46 11.33 12.20
</TABLE>
*Net amount subject to federal and Alabama personal income tax after deductions
and exemptions.
+The first tax bracket is calculated using the highest Alabama tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a lower
combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that Alabama taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal tax
rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over
the same ranges of income. The assumed Alabama State income tax rate is 5%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Alabama State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with Adjusted Gross Income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Alabama personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Alabama personal income taxes. It should also be noted
that the interest earned on certain "private activity" bonds issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON ARKANSAS MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Arkansas State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Arkansas Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Arkansas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Arkansas issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Arkansas issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Constitution of the State does not limit the amount of general
obligation bonds which may be issued by the State; however, no such bonds may be
issued unless approved by the voters of the State at a general election or a
special election held for that purpose. There is no constitutional limitation on
the aggregate principal amount of revenue bonds that may be issued by the State
and its agencies. All revenue bonds and notes are secured only by specific
revenue streams and neither the general revenues of the State nor its full faith
and credit are pledged to repayment.
Pursuant to the Revenue Stabilization Law, the General Assembly must enact
legislation to provide for an allotment process of funding appropriations in
order to comply with State law prohibiting deficit spending whereby spending is
limited to actual revenues received by the State. The Governor may restrict
spending to a level below the level of appropriations. Pursuant to the
Stabilization Act, the General Assembly establishes five levels of priority for
general revenue spending, levels "A," "B," "B-1," "C" and "C-1". Successive
levels of appropriations are funded only in the event sufficient revenues have
been generated to fully fund any prior level. Accordingly, appropriations made
to programs and agencies are only maximum authorizations to spend. Actual
expenditures are limited to the lesser of (i) moneys flowing into a program or
agency's fund maintained by the Treasurer or (ii) the maximum appropriation by
the General Assembly. Since State revenues are not collected throughout the year
in a pattern consistent with program and agency expenditures, a budget revolving
fund, which receives interest earnings from State fund investments, has been
established and is utilized to assure proper cash flow during any period.
One-half of all moneys deposited into the budget revolving fund ultimately are
utilized to supplement the State's capital construction program and the balance
is distributed to programs and agencies funded from general revenues.
The State operates under a biennial budgeting system with July 1, 1995
beginning the current biennium. The State ended fiscal 1994 in balance as
required by the Revenue Stabilization Act. Net available general revenue growth
for fiscal 1994 was 9%.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $74,103,217. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$280,071 (equivalent to 0.36% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $296,231 (equivalent to 0.37% of the Portfolio's average daily
net assets for such year). For the period from the Portfolio's start of
business, February 1, 1994, to the fiscal year ended August 31, 1994, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $172,691
(equivalent to 0.38% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $88,417. The Portfolio's
Investment Advisory Agreement with BMR is dated February 1, 1994 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $109,223 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $585,185 and the Principal Underwriter
received approximately $312,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $2,777,000 (which amount was
equivalent to 3.8% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $130,268, of which $129,088 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $1,005 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $20,283 on portfolio security transactions aggregating
$144,975,283 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995, and for the period from the start of business,
February 1, 1994, to the fiscal year ended August 31, 1994, the Portfolio paid
no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfoio who are members of the
Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight .......... $343 $1,129(2) $142,500(4)
Samuel L. Hayes, III ...... 316 1,308(3) 153,750(5)
Norton H. Reamer .......... 314 1,268 142,500
John L. Thorndike ......... 318 1,348 147,500
Jack L. Treynor ........... 341 1,274 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $424 of deferred compensation.
(3) Includes $446 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) is a Vice President
of the Portfolio. Mr. Browse has served as a Vice President of the Portfolio
since June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse is an
officer of various investment companies managed by Eaton Vance or BMR. Prior
to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader at Fidelity
Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from October 2, 1992 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 10/2/92* $1,000 $1,238.14 $1,208.14 23.81% 5.60% 20.81% 4.94%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,040.54 $ 990.83 4.05% 4.05% -0.92% -0.92%
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than their original cost.
- ----------
* Investment operations began on October 2, 1992.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.33%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.33% would be 6.75%, assuming a
combined federal and State tax rate of 35.83%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 11.7% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Arkansas Tax Free Fund to EV
Marathon Arkansas Tax Free Fund on February 1, 1994 and to EV Marathon Arkansas
Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Arkansas State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND ARKANSAS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------------------------- AR STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 58,151 - $121,300 $ 96,901 - $147,700 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$121,301 - $263,750 $147,701 - $263,750 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over - $263,750 Over - $263,750 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
</TABLE>
*Net amount subject to federal and Arkansas personal income tax after
deductions and exemptions.
+The first tax bracket is calculated using the highest Arkansas tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that Arkansas taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The assumed Arkansas State income tax rate is
7%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Arkansas State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Arkansas personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Arkansas personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON GEORGIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Georgia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Georgia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Georgia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Georgia issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Georgia issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The Georgia Constitution provides that the State may incur public debt of
two types for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred to acquire, construct,
develop, extend, enlarge or improve land, waters, property, highways,
buildings, structures, equipment or facilities of the State, its agencies,
departments, institutions and certain State authorities, to provide
educational facilities for county and independent school systems, to provide
public library facilities for county and independent school systems, counties,
municipalities, and boards of trustees of public libraries or boards of
trustees of public library systems, to make loans to counties, municipal
corporations, political subdivisions, local authorities and other local
government entities for water or sewerage facilities or systems, and to make
loans to local government entities for regional or multijurisdictional solid
waste recycling or solid waste facilities or systems. No general obligation
debt may be incurred, however, when the highest aggregate annual debt service
requirements for the then current year or any subsequent year for outstanding
general obligation debt and guaranteed revenue debt, including any proposed
debt, and the highest aggregate annual payments for the then current year or
any subsequent fiscal year of the State under certain State contracts, exceed
ten percent of the total revenue receipts, less refunds, of the State Treasury
in the fiscal year immediately preceding the year in which the debt is to be
incurred. In addition, no general obligation debt may be incurred with a term
in excess of twenty-five years.
Guaranteed revenue debt may be incurred by guaranteeing the payment of
certain revenue obligations issued by an instrumentality of the State. No
guaranteed revenue debt may be incurred to finance water or sewage treatment
facilities or systems when the highest aggregate annual debt service
requirements for the then current year or any subsequent fiscal year of the
State for outstanding or proposed guaranteed revenue debt for water or
sewerage facilities or systems exceed one percent of the total revenue
receipts, less refunds, of the State Treasury in the fiscal year immediately
preceding the year in which any debt is to be incurred. In addition, the
aggregate amounts of guaranteed revenue debt incurred to make loans for
educational purposes may not exceed $18 million, and the aggregate guaranteed
revenue debt incurred to purchase, or to lend or deposit against the security
of, loans for educational purposes that may be outstanding may not exceed $72
million.
As of May 31, 1996, the State's outstanding general obligation debt was
$4,670,545,000. The State had outstanding at July 31, 1996, $185,135,000 of
guaranteed revenue debt.
In addition to the State's general obligation debt and guaranteed revenue
debt, the State had outstanding at May 30, 1996, $395,000 in revenue bonds and
notes issued by various State agencies, authorities and institutions of higher
education.
In the 1996 Legislative Session, the General Assembly authorized the
issuance of $65,340,000 in aggregate principal amount of general obligation
bonds for fiscal year 1997, the proceeds of which are to be used for various
planned capital projects of the State, its departments and agencies.
The Georgia Constitution also permits the State to incur public debt to
supply a temporary deficit in the State Treasury in any fiscal year created by
a delay in collecting the taxes of that year. Such debt must not exceed, in
the aggregate, 5% of the total revenue receipts, less refunds, of the State
Treasury in the fiscal year immediately preceding the year in which such debt
is incurred. The debt incurred must be repaid on or before the last day of
the fiscal year in which it is to be incurred out of the taxes levied for that
fiscal year. No such debt may be incurred in any fiscal year if there is then
outstanding unpaid debt from any previous fiscal year which was incurred to
supply a temporary deficit in the State Treasury. No such debt has been
incurred under this provision since its inception.
Virtually all of the issues of long-term debt obligations issued by or on
behalf of the State of Georgia and counties, municipalities and other
political subdivisions and public authorities thereof are required by law to
be validated and confirmed in a judicial proceeding prior to issuance. The
legal effect of a validation in Georgia is to render incontestable the
validity of the pertinent bond issue and the security therefor.
Tax collections of the State for fiscal year 1995 were 9.0% over tax
collections for fiscal year 1994. Corporate and individual income tax
receipts and general sales tax receipts of the State for fiscal year 1995
comprised an estimated 43.7% and 35.0%, respectively, of the total State tax
revenues. Revenues from sales and income taxes increased 8.0% and 9.0%,
respectively, during fiscal year 1995.
Three suits (two for refund and one for declaratory and injunctive relief)
have been filed with the State of Georgia by foreign producers of alcoholic
beverages. The first suit seeks $96 million in refunds of alcohol import taxes
imposed under Georgia's post-Bacchus (468 U.S. 263-1984) statute, O.C.G.A.
(S) 3-4-60, et seq., as amended in 1985. These claims constitute 99% of all
such taxes paid during the three years preceding these claims. In addition,
the claimants have filed a second suit for refund of an additional $23 million
for apparently later time periods. These two cases encompass all known or
anticipated claims for refund of such type within the apparently applicable
statute of limitations for the years in question (1989 - January 1995). The
two refund cases are still pending in the trial court. The declaration/
injunctive relief case was dismissed by the Federal District Court and was
affirmed by the Eleventh Circuit Court of Appeals. The claimants have filed a
petition for rehearing which is pending.
A suit has also been filed based on a local school board's claim that the
State finance the major portion of the costs of its desegregation program.
The Savannah Board originally requested restitution in the amount of $30
million, but the Federal District Court set forth a formula which would
require a State payment in the amount of approximately $8,900,000 computed
through June 30, 1994. The plaintiffs, dissatisfied with the apportionment of
desegregation costs between State and county, and an adverse ruling on the
State funding formula for transportation costs, have appealed to the Eleventh
Circuit Court of Appeals. The State has filed a responsive cross-appeal on
the ground that there is no basis for any liability. Subsequently, the
parties agreed to a settlement, which has been approved by the Court. The
settlement calls for the State to pay the amount awarded to the plaintiffs and
to offer an option regarding future funding methodology for pupil
transportation. Because interest was accruing in the settlement, in March
1995, the State paid to the plaintiffs $8,925,000 in partial satisfaction of
the settlement agreement. The final settlement figure has yet to be
calculated, due to costs which accrued during the pendency of the settlement
proposal. Those cost calculations will be finalized in the next several months
but are not expected to exceed a total of $10,000,000, including the money
already paid.
A similar complaint has been filed by DeKalb County and seeking
approximately $67,500,000 in restitution. The federal District Court ruled
that the State's funding formula for pupil transportation (which the District
Court in the Savannah case upheld) was contrary to State law. This ruling
would require a State payment of a State law funding entitlement in the amount
of approximately $34,000,000 computed through June 30, 1994. Motions to
reconsider and amend the Court's judgment were filed by both parties. The
State's motion was granted, in part, which reduced the required State payment
to approximately $28,000,000. Notices of appeal to the Eleventh Circuit Court
of Appeals have been filed. There are approximately five other school
districts which might file similar claims.
Another suit has been filed in federal district and State superior courts
challenging the constitutionality of Georgia's transfer fee (often referred to
as "impact fee") by asserting that the fee violates the commerce clause, due
process, equal protection and privilege and immunities provisions of the
constitution. The plaintiff seeks to prohibit the State from further
collections and to require the State to return to her and those similarly
situated all fees previously collected. A similar lawsuit previously filed in
another State superior court has been voluntarily dismissed and will likely be
joined with this action. From May of 1992 to June 1995, the State has
collected $24,168,203. All amounts collected after June 7, 1995 are being
paid into an escrow account. The State continues to collect approximately
$500,000 to $600,000 per month.
On September 1, 1994, a civil action was filed in the Fulton County
Superior Court on behalf of all certain employees of the State of Georgia who
were subjected to a freeze in pay between 1992 and 1995. Should the
plaintiffs prevail in every aspect of their claims, the liability of the State
in this matter could be as much as $295,000,000, based on best estimates
currently available.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $108,974,295. For
the fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$473,056 (equivalent to 0.41% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $521,159 (equivalent to 0.41% of the Portfolio's average
daily net assets for such year). For the eleven months ended August 31, 1994,
the Portfolio paid BMR advisory fees of $496,637 (equivalent to 0.40%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and may be continued as described under "Investment Adviser and Administrator"
in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $103,513 on sales of Fund
shares. During the same period, the Fund made sales commission payments under
the Plan to the Principal Underwriter aggregating $869,639 and the Principal
Underwriter received approximately $475,000 in CDSCs imposed on early
redeeming shareholders. The sales commissions and CDSCs paid to the Principal
Underwriter reduced Uncovered Distribution Charges under the Plan. As at
August 31, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$3,759,000 (which amount was equivalent to 3.5% of the Fund's net assets on
such date). During the fiscal year ended August 31, 1996, the Fund paid or
accrued service fees under the Plan aggregating $196,317, of which $195,874
was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $1,995 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions $17,018 on portfolio security transactions aggregating
$146,330,600 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended August 31, 1995 and for the eleven months ended August
31, 1994, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1996, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1996, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex
(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $687 $1,542(2) $142,500(4)
Samuel L. Hayes, III ...... 632 1,687(3) 153,750(5)
Norton H. Reamer .......... 628 1,645 142,500
John L. Thorndike ......... 636 1,729 147,500
Jack L. Treynor ........... 681 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Cynthia J. Clemson (33) is a Vice
President of the Portfolio. Ms. Clemson has served as a Vice President of the
Portfolio since January 1, 1996. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and and employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from December 23, 1991 through August 31, 1996 and for the one-year
period ended August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ----------- ---------- ---------- -------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 12/23/91* $1,000 $1,258.14 $1,238.52 25.81% 5.02% 23.85% 4.67%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,049.06 $ 999.06 4.91% 4.91% -0.09% -0.09%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Investment operations began on December 23, 1991.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.56%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.56% would be 7.03%,
assuming a combined federal and State tax rate of 35.14%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 21.0% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Georgia Tax Free Fund to EV
Marathon Georgia Tax Free Fund on February 1, 1994 and to EV Marathon Georgia
Municipals Fund on January 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Georgia State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND GEORGIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ---------------------- GA STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,701 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $263,750 Over $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
</TABLE>
*Net amount subject to federal and Georgia personal income tax after
deductions and exemptions.
+The first tax bracket is calculated using the highest Georgia tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that Georgia taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and
39.6% over the same ranges of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Georgia State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint
filers with adjusted gross income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that Fund will achieve any
specific tax exempt yield. While it is expected that the Portfolio will invest
principally in obligations, the interest from which is exempt from the regular
federal income tax and Georgia personal income taxes, other income received by
the Portfolio and allocated to the Fund may be taxable. The table does not
take into account state or local taxes, if any, payable on Fund distributions
except for Georgia personal income taxes. It should also be noted that the
interest earned on certain "private activity bonds" issued after August 7,
1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON KENTUCKY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Kentucky State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Kentucky Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Kentucky considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Kentucky issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Kentucky issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Because the Kentucky Constitution requires the vote of a majority of the
state's electorate to approve the issuance of state general obligation
indebtedness and until recently regained the vote of two-thirds of a
municipality's electorate to approve the issuance of general obligation
indebtedness by any city, county, or other municipality within the state, most
Kentucky state and local government indebtedness is issued not as general
obligation indebtedness but as either debt payable only from revenues produced
by the particular project or as indebtedness subject to biennial, in the case of
the state, or annual, in the case of a local government, legislative
appropriation for the payment of debt service. Such appropriation-backed
indebtedness is customarily issued in the form of lease revenue bonds by a
public authority or public holding company which uses the proceeds of the bonds
to finance the particular public project and leases the project to the state or
local government pursuant to a lease renewable each fiscal biennium (in the case
of the state) or each fiscal year (in the case of a local government). Failure
of the lessee government to renew the lease would terminate the lessee's
obligation to make further rental payments and would leave the bondholders with
recourse only against the property which was subject to the lease and any other
security pledged for the payment of the bonds. An amendment to the state
constitution approved by the electorate at the November 1994 general election
authorized the Kentucky General Assembly to enact legislation permitting local
governments to issue general obligation indebtedness without voter approval but
subject to prescribed limitations on the maximum amount of indebtedness that may
be incurred based on the assessed value of the taxable property within the
municipality and such additional limitations and conditions as may be prescribed
by statute. Although the Kentucky General Assembly enacted enabling legislation
in 1996, the validity of the constitutional amendment is currently the subject
of a test case. Therefore, appropriation-backed indebtedness continues to be the
prevailing form of financing for local governments in Kentucky.
The Commonwealth of Kentucky recently retired the last of its outstanding
general obligation debt. In September 1994 S&P upgraded the rating of the
State's appropriation-backed debt from A to A. Moody's and Fitch rate the
State's appropriation-backed debt as A and A, respectively.
Kentucky is an "average" state in terms of size and in terms of its
proportion of the national economy. Kentucky has 1.5% of total U.S. population,
1.2% of total U.S. personal income, and 1.3% of total U.S. nonagricultural
employment. The Kentucky economy has shown almost uninterrupted growth for the
past decade. During 1995, the unemployment rate in Kentucky averaged 5.4%
compared to the national average of 5.6%; Kentucky nonagricultural employment
grew by 2.8% compared to the national average of 2.3%; manufacturing employment
in Kentucky increased by 2.8% compared to 0.5% nationally; and personal income
in Kentucky grew 5.8% compared to 6.0% nationally.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last four years. State General Fund Revenue grew by 3.5% in fiscal
year 1996 to a total of $5.34 billion. To avoid the need for state budget cuts
in the event revenues do not meet expectations, a Budget Reserve Trust Fund was
established with a $90 million deposit in fiscal year 1994 and has been
increased by additional deposits of $10 million in fiscal year 1995 and $100
million in fiscal year 1996 to a current balance of $200 million.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $133,017,453. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$577,479 (equivalent to 0.41% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $595,483 (equivalent to 0.42% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $510,287 (equivalent to 0.41% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $189,712 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $1,040,081 and the Principal
Underwriter received approximately $532,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $4,511,000 (which amount was
equivalent to 3.4% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $244,894, of which $244,436 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $1,657.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $43,344 on portfolio security transactions aggregating
$237,637,801 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For fiscal year
ended August 31, 1995 and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight .......... $687 $1,542(2) $142,500(4)
Samuel L. Hayes, III ...... 632 1,687(3) 153,750(5)
Norton H. Reamer .......... 628 1,645 142,500
John L. Thorndike ......... 636 1,729 147,500
Jack L. Treynor ........... 681 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (35) is a Vice President of
the Portfolio. Ms. Anderes has served as a Vice President of the Portfolio since
November 18, 1996. She joined BMR and Eaton Vance as a Vice President in January
1994. Ms. Anderes is an officer of various investment companies managed by Eaton
Vance or BMR. 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 (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from December 23, 1991 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 12/23/91* $1,000 $1,277.39 $1,257.45 27.74% 5.36% 25.74% 5.01%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,044.52 $ 994.62 4.45% 4.45% -0.54% -0.54%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on December 23, 1991.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.65%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.65% would be 7.17%, assuming a
combined federal and State tax rate of 35.14%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 14.8% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Kentucky Tax Free Fund to EV
Marathon Kentucky Tax Free Fund on February 1, 1994 and to EV Marathon Kentucky
Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Kentucky State income tax laws, and intangibles tax laws and tax rates
applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND KENTUCKY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- --------------------- KY STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $263,750 Over $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- --------------------- --------------------------------------------------------------------
(TAXABLE INCOME*) TAXABLE EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX**:
- ------------------------------------------- --------------------------------------------------------------------
Up to $ 24,000 Up to $ 40,100 5.36% 5.99% 6.61% 7.23% 7.86% 8.48% 9.11%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 6.33 7.07 7.80 8.54 9.28 10.01 10.75
$ 58,151 - $121,300 $ 96,901 - $147,700 6.61 7.37 8.14 8.91 9.68 10.45 11.22
$121,301 - $263,750 $147,701 - $263,750 7.12 7.95 8.78 9.61 10.44 11.27 12.10
Over $263,750 Over $263,750 7.55 8.42 9.30 10.18 11.06 11.94 12.82
</TABLE>
*Net amount subject to federal and Kentucky personal income tax after
deductions and exemptions.
+The first tax bracket is calculated using the highest Kentucky tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that Kentucky taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The Kentucky State income rate tax is 6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Kentucky state income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
**The Kentucky intangibles tax on stocks, bonds, notes and other evidences of
debt is 25 cents on every $100 of the value thereof. An example of the effect
of the Kentucky intangibles tax on the combined tax brackets of taxpayers is
as follows: A $10,000 investment subject to the tax would require payment of
$25 annually in intangibles taxes. If the investment yielded 5.5% annually or
$550, the intangibles tax as a percentage of income would be $25/$550 or
4.55%. If a taxpayer owning such an investment were in the 6% state income tax
bracket, he or she would be paying combined state taxes as a percentage of
income of 6% plus 4.55% or 10.55%. Assuming the deductibility of these taxes
as itemized deductions and that such taxpayer were in the 36% federal income
tax bracket, the taxpayer would then be in a 42.75% [36% + (1 - .36) X 10.55%]
combined tax bracket with respect to such investment. This is higher than the
39.84% combined tax bracket without taking into account the intangibles tax.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Kentucky personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Kentucky personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
The Part II provides information about EV MARATHON LOUISIANA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Louisiana State individual and corporate
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Louisiana Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Louisiana considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Louisiana issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Louisiana issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The State of Louisiana General Fund should have a $76.8 million balance
after Fiscal Year 1995-96. However, Fiscal Year 1996-97 budget projections
indicate that the State will have to rely on reduction in expenditures by
approximately $72.5 million to produce a balanced budget. One of the most severe
budget issues is the Medicaid program. For Fiscal Year 1995-96, Louisiana was
eligible to receive $690 million in Medicaid disproportionate share payments for
hospitals. In the past, Louisiana used a portion of the amounts paid to the
State public hospitals to fund the State's portion of the Medicaid program. The
1993 amendments to the federal disproportionate share law severely restrict the
State's ability to continue to help finance health care in this manner. On April
26, 1996, Congress adopted a budget bill that included a two-year funding based
specifically for the State Medicaid Program. This budget bill allows the State
to move forward with the Medicaid Managed Care initiatives without being faced
with severe funding cuts. It is expected, however, that additional program
reductions will be required in order to bear a $2.6 billion Federal fund cap and
the minimum required State match of $600 million for Fiscal Year 1996-97 as
allowed by Congress. The State's executive and legislative leadership is
currently revising its overall spending projections for years through Fiscal
Year 1999-2000, including projections for Medicaid requirements. This Medicaid
problem will also slow the growth in the services sector of the Louisiana
economy.
The Louisiana Economic Development and Gaming Corporation (the "Gaming
Corporation") was created by the Louisiana legislature in 1992 for the purpose
of contracting with a casino operator to provide for or furnish an official
gaming establishment and to conduct casino gaming operations at the official
gaming establishment, the Rivergate Convention Center in New Orleans (the
"casino") as well as a temporary casino until the casino is opened. Voters at
the general election held in November, 1996, approved land-based gambling in the
City of New Orleans. Once the casino is in operation, the operator must pay a
minimum of 18 1/2% of gross revenues, or $100 million annually, whichever is
higher, to the Gaming Corporation. The Gaming Corporation must transfer daily to
the State Treasury for deposit in the Casino Gaming Proceeds Fund net revenues
which are surplus to its needs. Such revenues will be first credited to the Bond
Security and Redemption Fund before being credited to the Casino Gaming Proceeds
Fund. Moneys in the Casino Gaming Proceeds Fund may be allotted or expended only
pursuant to legislative appropriation. The operating contract was awarded to
Harrah's Jazz Company, which is a partnership comprised of three principals:
Harrah's New Orleans; New Orleans/Louisiana Development Corporation (Jazzville);
and Grand Palais Corporation. Construction of the permanent casino began at the
site of the old Rivergate in the spring of 1995. In November, 1995, after
unsuccessfully operating a temporary casino at the New Orleans Municipal
Auditorium, Harrah's New Orleans filed voluntary bankruptcy under Chapter 11.
Harrah's New Orleans is in the process of restructuring Harrah's Jazz Company
financing and renegotiating other contractual terms. The temporary casino will
not re-open. It appears at this time that a scaled-down version of the casino
will be opened in the latter part of 1997, but the Governor of the State has
publicly stated that he will not comprise any payments that are due the State
under the enabling legislation and the original contract. At this time, the
situation has not been resolved. The State has not included any revenue from
land based casino gaming in the official revenue forecast for Fiscal Year
1996-97.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $35,048,671. For the
fiscal year ended August 31, 1996, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $81,468 (equivalent to 0.23% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $40,000.
For the fiscal year ended August 31, 1995, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $73,471 (equivalent to 0.23% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$36,188. For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $34,790 (equivalent to 0.21%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $31,760. The Portfolio's Investment Advisory Agreement with
BMR is dated February 1, 1994 and may be continued as described under
"Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $143,790 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $247,330, and the Principal Underwriter
received approximately $88,000 in CDSCs imposed on early redeeming shareholders.
The sales commissions and CDSCs paid to the Principal Underwriter reduced
Uncovered Distribution Charges under the Plan. As at August 31, 1996, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $1,362,000 (which amount was
equivalent to 4.1% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $56,538, of which $56,444 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $305 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $7,029 on portfolio security transactions aggregating $59,248,516
to firms which provided some research services to BMR or its affiliates
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the period from the start of business,
February 1, 1994, to the fiscal year ended August 31, 1994, the Portfolio paid
no brokerage commissions on portfolio transactions.
The Portfolio's turnover rates for the fiscal years ended August 31, 1995
and 1996 were 46% and 99%, respectively. The difference in the portfolio
turnover rate for the past two fiscal years is primarily the result of a change
in the Portfolio's portfolio manager in January, 1996. The new manager bought
and sold securities during 1996 to take advantage of opportunities to improve
the Portfolio's credit quality and to better position the Portfolio for a
declining interest rate environment.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
Donald R. Dwight ..... $34 $343(2) $142,500(4)
Samuel L. Hayes, III . 32 316(3) 153,750(5)
Norton H. Reamer ..... 31 314 142,500
John L. Thorndike .... 32 318 147,500
Jack L. Treynor ...... 34 341 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $129 of deferred compensation.
(3) Includes $104 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from October 2, 1992 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 10/2/92* $1,000 $1,231.93 $1,202.05 23.19% 5.46% 20.20% 4.81%
1 Year
Ended
8/31/96*** 8/31/95 $1,000 $1,047.67 $ 997.77 4.77% 4.77% -0.22% -0.22%
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than their original cost.
- ----------
* Investment operations began on October 2, 1992.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
5.41%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.41% would be 7.84%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Portfolio's
expenses had not been allocated to the Investment Adviser, the Fund would have
had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 39.6% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Louisiana Tax Free Fund to EV
Marathon Louisiana Tax Free Fund on February 1, 1994 and to EV Marathon
Louisiana Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Louisiana State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND LOUISIANA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------- --------------------- LA STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over - $263,750 Over - $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
</TABLE>
*Net amount subject to federal and Louisiana personal income tax after
deductions and exemptions.
+Tax brackets are calculated using the highest Louisiana tax rate within the
brackets. Taxpayers with taxable income within these brackets may have a lower
combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that Louisiana taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within each of these combined brackets are 15%, 28%, 31% and 39.6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Louisiana State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Louisiana personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Louisiana personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MARYLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Maryland State and local income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Maryland Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Maryland considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Maryland issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Maryland issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Generally Maryland has been among the most heavily indebted of the states,
although its position is more moderate with the inclusion of local debt,
reflecting in part the State assumption several years ago of a substantial
portion of local school construction costs. The State became concerned over its
debt levels and, following recommendations of a debt affordability committee,
has practiced restraint in borrowing. Resources have also expanded and debt
ratios have fallen. Capital borrowing plans are reasonable and designed not to
increase debt levels. Recently, major infrastructure projects undertaken,
including a light rail line, a stadium, and airport and convention center
improvements, have been financed primarily by revenue-backed or other
non-general obligation financings.
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State, as well as the various counties and
municipalities of the State, issues general obligation bonds payable from ad
valorem taxes for capital improvements. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities, as well as several local
governments, issue obligations payable solely from identified taxes or revenue
streams, including loan obligations from nonprofits, companies or other private
entities, and for which the State or local government has no liability and has
given no moral obligation assurance. The State, its agencies and departments and
the various localities also enter into municipal leases or installment purchase
obligations. Such a lease is not a general obligation of the municipality for
which the municipality's taxing power is pledged but is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments due
under the lease. Such municipal leases generally contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis.
During fiscal year 1991 through 1993, the State experienced budgetary
problems caused by a national recession. To address revenue shortfalls and
expanded expenditure requirements the State increased tax and other revenues,
curtailed various programs and transferred funds from various reserve accounts.
The State ended its fiscal year 1994 with a General Fund suplus on a budgetary
basis of approximately $60.0 million, and ended its fiscal year 1995 with a
General Fund surplus on a budgetary basis of approximately $26.5 million
(excluding $106 million to be applied to the fiscal year 1996 budget) and $286.1
million in the Revenue Stabilization Account of the State Reserve Fund. When the
fiscal year 1996 budget was enacted, it was anticipated that the year-end
General Fund surplus on a budgetary basis would be approximately $7.8 million
and that there would be $370.9 million in the State's Revenue Stabilization
Account. The State currently projects the year-end General Fund surplus on a
budgetary basis to be approximately $34.3 million and the balance in the Revenue
Stabilization Account to be approximately $51.8 million. Fiscal year 1995
revenues for the General Fund were $7.09 billion; fiscal 1996 revenues for the
General Fund are anticipated to be $7.43 billion.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $110,588,345. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$454,842 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $459,907 (equivalent to 0.40% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $390,773 (equivalent to 0.39% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $260,829 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $852,487 and the Principal Underwriter
received approximately $445,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $3,946,000 (which amount was
equivalent to 3.6% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $185,757, of which $185,020 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $350 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $15,543 on portfolio security transactions aggregating
$136,017,108 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight .......... $687 $1,542(2) $142,500(4)
Samuel L. Hayes, III ...... 632 1,687(3) 153,750(5)
Norton H. Reamer .......... 628 1,645 142,500
John L. Thorndike ......... 636 1,729 147,500
Jack L. Treynor ........... 681 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) is a Vice President
of the Portfolio. Mr. Browse has served as a Vice President of the Portfolio
since June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse is an
officer of various investment companies managed by Eaton Vance or BMR. Prior
to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader at Fidelity
Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from February 3, 1992 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 2/3/92* $1,000 $1,301.15 $1,281.15 30.12% 5.92% 28.12% 5.56%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,054.40 $1,004.40 5.44% 5.44% 0.44% 0.44%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on February 3, 1992.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.43%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.43% would be 6.98%, assuming a
combined federal and State tax rate of 36.52%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
TAXES
The Fund will not be subject to Maryland corporate income tax, provided
that, if there exists sufficient nexus between the State of Maryland and the
Fund to enable Maryland to tax the Fund, then the Fund will not be subject to
the corporate income tax for a taxable year if the Fund distributes to
shareholders all of its net investment income for such year.
The Fund will not be subject to Maryland financial institution franchise
taxes.
Obligations held by the Fund will not be subject to Maryland personal
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 15.7% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Maryland Tax Free Fund to EV
Marathon Maryland Tax Free Fund on February 1, 1994 and to EV Marathon Maryland
Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Maryland State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND MARYLAND STATE AND LOCAL
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MD STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------ -------------------- AND LOCAL --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57
$ 58,151 - $121,300 $ 96,901 - $147,700 36.52 6.30 7.09 7.88 8.66 9.45 10.24 11.03
$121,301 - $263,750 $147,701 - $263,750 41.12 6.79 7.64 8.49 9.34 10.19 11.04 11.89
Over $263,750 Over $263,750 44.43 7.20 8.10 9.00 9.90 10.80 11.70 12.60
</TABLE>
*Net amount subject to federal and Maryland State and local personal income
taxes after deductions and exemptions.
+Tax brackets are calculated using the highest Maryland State and local tax rate
within the brackets. Taxpayers with taxable income within these brackets may
have a lower combined bracket and taxable equivalent yield than indicated
above. The illustration assumes the taxpayer is subject to a local income tax
which is 60% of the State rate. The combined tax brackets assume that Maryland
State and local income taxes are itemized deductions for federal income tax
purposes. Investors who do not itemize deductions on their federal income tax
return will have a higher combined bracket and higher taxable equivalent yield
than those indicated above. The applicable federal tax rates within the
brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same ranges
of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Maryland State and local income
taxes) for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint filers
with adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Maryland State personal income taxes, other
income received by the Portfolio and allocated to the Fund may be taxable. The
table does not take into account state or local taxes, if any, payable on Fund
distributions except for Maryland State and local personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MISSOURI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Missouri State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Missouri Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Missouri considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Missouri issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Missouri issuers. Neither the Trust nor the Portfolio has independently verified
this information.
While Missouri has a diverse economy with a distribution of earnings and
employment among manufacturing, trade and service sectors closely approximating
the average national distribution, the national economic recession of the early
1980's had a disproportionately adverse impact on the economy of Missouri.
However, since the 1980 to 1983 recession periods, Missouri unemployment levels
generally approximated or slightly exceeded the national average. The St. Louis
and Kansas City metropolitan areas are important contributors to the Missouri
economy. Economic reversals in either of these two areas would have a major
impact on the overall economic condition of the State of Missouri. Additionally,
the State of Missouri has a significant agricultural sector which is
experiencing farm-related problems comparable to those which are occurring in
other states. To the extent that these problems were to intensify, there could
possibly be an adverse impact on the overall economic condition of the State.
Defense related business plays an important role in Missouri's economy. In
addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related businesses
in Missouri are the recipients of substantial annual dollar volumes of defense
contract awards. McDonnell Douglas Corporation, the State's largest employer,
received the second largest dollar amount of defense contracts in the United
States in 1995. There can be no assurances there will not be further changes in
the levels of military appropriations, and, to the extent that further changes
in military appropriations are enacted by the United States Congress, Missouri
could be disproportionately affected.
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty: litigation
continues on many issues, court orders are unpredictable, and school district
spending patterns have proven difficult to predict. A recent Supreme Court
decision favorable to the State may decrease the level of State funding required
in the future, but the impact of this decision is uncertain. The State paid $282
million for desegregation costs in fiscal 1994 and the budget for fiscal 1995
provided $315 million. This expense accounts for close to 7% of total state
General Revenue Fund spending.
Article X, Sections 16-24 of the Constitution of Missouri (the "Hancock
Amendment") imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well as
on the amount of local taxes, licenses and fees (including taxes, licenses and
fees used to meet debt service commitments on debt obligations) which may be
imposed by local governmental units (such as cities, counties, school districts,
fire protection districts and other similar bodies) in the State of Missouri in
any fiscal year.
The limit on taxes is tied to total State revenues determined in accordance
with the formula set forth in the amendment, which adjusts the limit based on
increases in the average personal income of Missouri for certain designated
periods. The details of the amendment are complex and clarification from
subsequent legislation and further judicial decisions may be necessary.
Generally, if the total State revenues exceed the State revenue limit imposed by
Section 18 of Article X by more than 1%, the State is required to refund the
excess. The State revenue limitation imposed by the Hancock Amendment does not
apply to taxes imposed for the payment of principal and interest on bonds,
approved by the voters and authorized by the Missouri Constitution. The revenue
limit can also be exceeded by a constitutional amendment authorizing new or
increased taxes or revenues adopted by the voters of the State of Missouri. The
Hancock Amendment also limits new taxes, licenses and fees and increases in
taxes, licenses and fees by local governmental units in Missouri. It prohibits
counties and other political subdivisions (essentially all local governmental
units) from levying new taxes, licenses and fees or increasing the current levy
of an existing tax, license or fee "without the approval of the required
majority of the qualified voters of that county or other political subdivision
voting thereon."
When a local governmental unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced "to yield the same estimated gross revenue as on the prior base." It
also effectively limits any percentage increase in property tax revenues to the
percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $85,162,363. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$339,243 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $353,176 (equivalent to 0.38% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $296,556 (equivalent to 0.37% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $137,794 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $657,054 and the Principal Underwriter
received approximately $304,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $2,856,000 (which amount was
equivalent to 3.5% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $150,023, of which $149,425 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $892.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $15,858 on portfolio security transactions aggregating
$211,176,593 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995, and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight .......... $343 $1,129(2) $142,500(4)
Samuel L. Hayes, III ...... 316 1,308(3) 153,750(5)
Norton H. Reamer .......... 314 1,268 142,500
John L. Thorndike ......... 318 1,348 147,500
Jack L. Treynor ........... 341 1,274 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $424 of deferred compensation.
(3) Includes $446 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Cynthia J. Clemson (33) is a Vice
President of the Portfolio. Ms. Clemson has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from May 1, 1992 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 5/1/92* $1,000 $1,315.42 $1,295.42 31.54% 6.52% 29.54% 6.14%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,045.99 $ 995.99 4.60% 4.60% -0.40% -0.40%
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than their original cost.
- ----------
* Investment operations began on May 1, 1992.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.38%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.38% would be 6.47%, assuming a
combined federal and State tax rate of 35.14%.
See the Tax Equivalent Yield Table in this Part II for information concerning
applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 7.3% of the outstanding shares, which were
held on behalf of its customers who are the beneficial owners of such shares,
and as to which it had voting power under certain limited circumstances. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Missouri Tax Free Fund to EV
Marathon Missouri Tax Free Fund on February 1, 1994 and to EV Marathon Missouri
Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Missouri State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND MISSOURI STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- MO STATE --------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $263,750 Over $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
</TABLE>
*Net amount subject to federal and Missouri personal income tax after deductions
and exemptions.
+The first tax bracket is calculated using the highest Missouri tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a lower
combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that Missouri taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal tax
rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over
the same ranges of income. The assumed Missouri State income tax rate is 6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Missouri State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Missouri personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Missouri personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NORTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and North Carolina State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the North Carolina Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain North Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in North Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of North Carolina issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The current economic profile of the State consists of a combination of
industry, agriculture and tourism. Tobacco production, which had been the
leading source of agricultural income in the State, declined in 1995. Tobacco
farming in the State has been and is expected to continue to be affected by
major Federal legislation and regulatory measures regarding tobacco production
and marketing and by international competition.
The State's seasonally adjusted unemployment rate in August, 1996 was
estimated to be 4.1% of the labor force, as compared with an unemployment of
5.1% nationwide. The labor force has undergone significant change during recent
years as the State has moved from an agricultural to a service and goods
producing economy. Those persons displaced by farm mechanization and farm
consolidations have, in large measure, sought and found employment in other
pursuits.
During fiscal 1991 and 1992, the State was forced to employ various
non-recurring items and budget reductions in order to balance the State's
budget. Among other things, the State deferred Basic Education Program
improvements. In addition, the State also implemented approximately $640 million
in tax increases, including raising the State sales tax from 3% to 4%. This 4%
tax is the State's portion of the total 6% sales tax with the rest dedicated to
local governments. A 4% corporate income tax surcharge was also implemented and
is scheduled to terminate on January 1, 1995. The State's fiscal position has
improved considerably since 1992, with the general fund balance increasing from
a deficit position to a surplus equal to 11% of 1994 expenditures.
The State is a defendant in pending court actions involving the taxing of
benefits paid to federal retirees and related matters. Although specific claims
for damages have not been precisely calculated, the amount could exceed $400
million over a period of years. The State is also a defendant in several other
litigations which, in the opinion of the Department of the Treasurer, could have
a material adverse affect on the State's ability to meet its obligations. In the
Leandro action, the plaintiffs claim that the State has failed to provide
adequate or substantially equal educational opportunities to children. In the
Francisco action, the plaintiffs claim that the State has failed to fund
programs to educate non-English speaking students. In a series of cases
involving State retirement benefits, disabled retirees are challenging, on
various grounds, changes in the formula for paying retirement benefits. Damages
could exceed $100 million. In the Fulton case, the imposition of the State's
intangible personal property tax on shares of stock has been challenged.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $187,044,385. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$832,564 (equivalent to 0.43% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $851,448 (equivalent to 0.44% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $744,143 (equivalent to 0.42% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $219,900 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $1,373,171 and the Principal
Underwriter received approximately $742,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $5,905,000 (which amount was
equivalent to 3.5% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $328,294, of which $326,372 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $2,162.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $26,538 on portfolio security transactions aggregating
$211,176,598 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacites
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight ....... $687 $2,091(2) $142,500(4)
Samuel L. Hayes, III ... 632 2,192(3) 153,750(5)
Norton H. Reamer ....... 628 2,147 142,500
John L. Thorndike ...... 636 2,238 147,500
Jack L. Treynor ........ 681 2,228 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $784 of deferred compensation.
(3) Includes $737 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from October 23, 1991 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 10/23/91* $1,000 $1,289.95 $1,270.01 29.00% 5.38% 27.00% 5.04%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,048.29 $ 998.29 4.83% 4.83% -0.17% -0.17%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on October 23, 1991.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.39%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.39% would be 6.90%, assuming a
combined federal and State tax rate of 36.35%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 12.0% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance North Carolina Tax Free Fund to
EV Marathon North Carolina Tax Free Fund on February 1, 1994 and to EV Marathon
North Carolina Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and the
North Carolina State income tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND NORTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------------------------- NC STATE ------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 58,151 - $121,300 $ 96,901 - $147,700 36.35 6.28 7.07 7.86 8.64 9.43 10.21 11.00
$121,301 - $263,750 $147,701 - $263,750 40.96 6.78 7.62 8.47 9.32 10.16 11.01 11.86
Over $263,750 Over $263,750 44.28 7.18 8.08 8.97 9.87 10.77 11.67 12.56
</TABLE>
*Net amount subject to federal and North Carolina personal income tax after
deductions and exemptions.
+Tax brackets are calculated using the highest North Carolina tax rate within
each bracket. Taxpayers with taxable income within these brackets may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that North Carolina taxes are itemized deductions
for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within each of these combined brackets are 15%, 28%, 31% and 39.6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including North Carolina State income
taxes) for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint filers
with adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Fund will invest
principally in obligations, the interest from which is exempt from the regular
federal income tax and North Carolina personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for North Carolina personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON OREGON MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Oregon State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Oregon Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Oregon considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Oregon issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Oregon issuers. Neither
the Trust nor the Portfolio has independently verified this information.
As of September 1, 1996, $3.64 billion in general obligation bonds issued by
the State of Oregon and its agencies and instrumentalities were outstanding,
including $125.1 million in general obligation bonds supported by the budget for
the State's general fund and $3.52 billion of self-supporting general obligation
bonds. The State's self-supporting general obligation bonds include $2.78
billion of State veteran's bonds, which, in the event of poor economic
conditions resulting in an increased number of mortgage defaults, could cease to
be self-supporting. All of the existing and outstanding general obligation bonds
of the State have been issued under specific State constitutional provisions
that authorize the issuance of such bonds and provide authority for ad valorem
taxation to pay the principal of and interest on such bonds. With the exception
of the veteran's bonds, for which no more than two mills on each dollar
valuation may be levied to pay principal and interest, the authority of the
State to tax property for the payment of its general obligation bonds is
unlimited. Since at least 1950, the State has not imposed ad valorem tax for the
payment of any of its obligations because other revenues, including those
generated by the self-supporting bonds, have been sufficient.
In addition to general obligation bonds, various state statutes authorize
the issuance of State revenue bonds and certificates of participation. These
limited obligations of the State or its agencies or instrumentalities may be
payable from a specific project or source, including lease rentals. The State is
not authorized to impose ad valorem taxes on property for the payment of
principal and interest on these bonds, so they are more sensitive to changes in
the economy. There can be no assurance that future economic problems will not
adversely affect the market value of Oregon obligations held by the Portfolio or
the ability of the respective obligors (both private and governmental) to make
required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal source of State tax
revenues are personal income and corporate income taxes. For the 1995-97
biennium, approximately 96.6% of the State's legislatively budgeted revenues are
projected to come from combined income taxes, insurance taxes, gift and
inheritance taxes, and cigarette and tobacco taxes.
Over the past several years, a number of species of Oregon wildlife have
been added to the Endangered Species list, including the northern spotted owl
and certain populations of salmon. The spotted owl listing has already had a
substantial economic impact on the State's economy, primarily through a
reduction in timber harvests from federal lands. The salmon listings also have
had a substantial economic impact, primarily through increased electricity rates
and related impacts on rate-sensitive industries such as the aluminum industry.
Efforts to protect the spotted owl and salmon and steelhead populations may
eventually affect a wide variety of agricultural, industrial, recreational and
land use activities, with corresponding impacts on long-term economic growth.
The magnitude and extent of any future environmental action is difficult to
predict.
Ballot Measure 5. Article XI, section 11b of the Oregon Constitution,
adopted by Oregon's voters in November 1990 ("Ballot Measure 5"), imposes an
aggregate limit on the rate of property taxes, including ad valorem taxes, that
may be levied against any real or personal property. The limit is subject to
certain exceptions and is being phased in over a five-year period. Beginning
with the tax year that starts on July 1, 1996, the final year of the phase-in
period, not more than $15 per $1,000 of real market value can be levied against
any piece of property. Of this amount, $5 may be used for public education, and
the remaining $10 may be used for general governmental purposes.
The limitations of Ballot Measure 5 do not apply to taxes imposed to pay the
principal of and interest on bonded indebtedness authorized by a specific
provision of the State Constitution or which has received voter approval.
Therefore, since the State has traditionally issued only general obligation
indebtedness that is authorized by specific provisions of the State Constitution
and units of local government have generally adopted policies of seeking
specific approval for all general obligation indebtedness, the ability of the
State and units of local government to levy taxes to service their general
obligation indebtedness has generally avoided the limit. In addition, because
the State currently receives its revenues from sources other than property
taxes, Ballot Measure 5 has not directly affected State revenues.
Ballot Measure 5 has controlled the growth of local property tax revenues
since its adoption. Although the growth in local property valuations during the
period 1991 to 1995 has somewhat mitigated the potential impacts of Ballot
Measure 5, revenues of local government units in Oregon have generally been
adversely affected by the adoption of Ballot Measure 5. This appears to be
particularly true with respect to school districts operating revenues.
Ballot Measure 5 required the State to replace a substantial portion of the
lost revenues of local school districts through the end of fiscal year
1995-1996. Although this obligation has now expired, the extent of revenue loss
perceived to have been incurred by local school districts indicates that the
State may continue to provide significant revenue relief to these governmental
units. In addition, the provisions of the initiative known as Ballot Measure 47,
as defined and discussed below, is expected to also result in the State making
further financial assistance available to certain units of local government as a
result of further restrictions and limitations placed upon the ability of units
of local government to generate revenues through Oregon's system of ad valorem
property taxation.
Ballot Measure 47. At the November 5, 1996 general election, the voters of
the State of Oregon approved a constitutional amendment creating new sections
11g, 11h, 11i and 11j within Article XI of the Oregon Constitution. The
initiative proposing these amendments was commonly referred to as "Ballot
Measure 47" or "Cut and Cap."
Ballot Measure 47 will generally reduce the revenues of local governements
available from ad valorem property taxes starting on July 1, 1997. For fiscal
year 1997-98, the amount of tax which may be collected from each property
subject to taxation is limited to the lesser of the amount due for fiscal year
1995-96 reduced by ten percent (10%) or the amount due for fiscal year 1994-95.
Future increases in annual ad valorem property taxes which can be collected from
each property subject to taxation are limited to three percent (3%) unless
certain exceptions apply. Ballot Measure 47 also contains provisions limiting
local governments' ability to shift activities previously funded in whole or in
part from ad valorem property tax revenues to a user fee or other form of non-ad
valorem property tax basis. One of the exceptions is for taxes levied to pay
bonded indebtedness which has been approved by the voters in accordance with
certain specific and new guidelines contained in Ballot Measure 47.
By its terms, Ballot Measure 47 does not affect the revenues of governmental
units which do not rely upon the collection of ad valorem property taxes, such
as the State, or governmental operations which are supported solely from user
fees and charges, such as many municipal utilities. However, its revenue
reducing provisions are expected to create new financial burdens on the State
revenue resources as well as on the revenue resources of units of government
which levy and collect ad valorem property taxes. Such burdens are expected to
arise, at least in part, from the potential need for the State to assist units
of local government adversely affected by the implementation of Ballot Measure
47. Although the actual impact of Ballot Measure 47 on a particular unit of
local governement cannot presently be determined because the methodology for
applying its provisions to individual properties has not yet been established,
it is anticipated that the general fund operations of many local government
units will be materially adversely affected by its revenue reduction and revenue
growth limiting provisions.
Ballot Measure 11. In November 1994, voters approved three measures
affecting the State's penal system. The most significant in terms of financial
impact for the State is Ballot Measure 11, which established mandatory minimum
prison sentences for certain felons. It is anticipated that this initiative will
require construction of a substantial number of additional prison beds.
Currently, the State expects to fund construction from sources other than the
State general fund.
Several litigation matters are pending involving the State. These matters
include (i) an action filed by several out-of-state insurers challenging
Oregon's gross premium tax on out-of-state insurers and seeking refunds of taxes
previously paid, which could result in the State being liable for approximately
$50 million in refunds and (ii) several cases in which federal retires have
challenged the validity of a State Public Employees Retirement System benefit
increase to offset the taxation of such benefits or have sought refunds of State
taxes paid on federal retirement benefits. In addition, the Oregon Supreme Court
has ruled against the State in an action brought to require the State to return
$81 million that was transferred in 1983 from the State's Industrial Accident
Fund ("SAIF") to the State's general fund. The amount required to be returned to
SAIF, including interest, has been estimated to be approximately $280 million.
The claims have been settled for a State obligation to pay $225 million. $65
million of that amount has been paid. $80 million is payable at the end of the
1997 legislative session, and an additional $80 million is payable at the end of
the 1999 legislative session.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $129,758,655. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$574,189 (equivalent to 0.41% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $609,837 (equivalent to 0.42% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $534,681 (equivalent to 0.41% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $170,426 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $1,047,054 and the Principal
Underwriter received approximately $645,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $4,465,000 (which amount was
equivalent to 3.5% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $236,226, of which $234,833 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $2,107.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $39,752 on portfolio security transactions aggregating
$204,677,669 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995, and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions. For the
period from October 1, 1992, to February 1, 1993 (when the Fund transferred its
assets to the Portfolio), the Fund paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight ........ $687 $1,542(2) $142,500(4)
Samuel L. Hayes, III .... 632 1,687(3) 153,750(5)
Norton H. Reamer ........ 628 1,645 142,500
John L. Thorndike ....... 636 1,729 147,500
Jack L. Treynor ......... 681 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Thomas M. Metzold (38), Vice President.
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Metzold was elected Vice
President of the Portfolio on November 18, 1996. He has been a Vice President
of Eaton Vance since 1991 and of BMR since 1992. Mr. Metzold has been an
employee of Eaton Vance since 1987.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from December 24, 1991 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 12/24/91* $1,000 $1,306.95 $1,286.95 30.70% 5.87% 28.70% 5.53%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,038.01 $ 988.35 3.80% 3.80% -1.17% -1.17%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on December 24, 1991.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.36%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.36% would be 6.94%, assuming a
combined federal and State tax rate of 37.21%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 11.4% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned or record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Oregon Tax Free Fund to EV
Marathon Oregon Tax Free Fund on February 1, 1994 and to EV Marathon Oregon
Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Oregon State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND OREGON STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- OR STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------- --------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 22.65% 5.17% 5.82% 6.46% 7.11% 7.76% 8.40% 9.05%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 34.48 6.11 6.87 7.63 8.39 9.16 9.92 10.68
$ 58,151 - $121,300 $ 96,901 - $147,700 37.21 6.37 7.17 7.96 8.76 9.56 10.35 11.15
$121,301 - $263,750 $147,701 - $263,750 41.76 6.87 7.73 8.59 9.44 10.30 11.16 12.02
Over $263,750 Over $263,750 45.04 7.28 8.19 9.10 10.01 10.92 11.83 12.74
</TABLE>
*Net amount subject to federal and Oregon personal income tax after deductions
and exemptions.
+The first tax bracket is calculated using the highest Oregon tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a lower
combined bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that Oregon taxes are itemized deductions for federal
income tax purposes. Investors who do not itemize deductions on their federal
income tax return will have a higher combined bracket and higher taxable
equivalent yield than those indicated above. The applicable federal tax rates
within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the
same ranges of income. The assumed Oregon State income tax rate is 9%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Oregon State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above. The tax brackets and taxable equivalent yields do not take into account
the limited deductibility of federal income tax withholding in arriving at state
taxable income, which may decrease the taxable equivalent yield of the Fund to
certain investors.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Oregon personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Oregon personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not appliable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON SOUTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and South Carolina State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the South Carolina Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain South Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in South Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of South Carolina issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The South Carolina Constitution requires the General Assembly to provide a
balanced budget and requires that if there is a deficit, such deficit shall be
provided for in the succeeding fiscal year. The State Constitution also provides
that (i) the State Budget and Control Board may, if a deficit appears likely,
effect such reductions in appropriations as may be necessary to prevent a
deficit, (ii) annual increases in State appropriations may not exceed the
average growth rate of the economy of the State, (iii) that the annual increase
in the number of State employees may not exceed the average growth of the
population of the State, and (iv) a General Reserve Fund be maintained in an
amount equal to 3% of General Fund revenue for the latest fiscal year. The State
also maintains a Capital Reserve Fund equal to 2% of the General Reserve Fund.
Despite several spending reductions in fiscal 1992, the State recorded a
budgetary basis operating deficit of $54 million due to lower than anticipated
sales and corporate-income tax revenues. The State ended fiscal 1992 with only
$7.6 million in its budgetary general fund. In June 1993, the presidential
base-closing commission voted to close the Charleston Naval Base. South Carolina
has estimated lost revenues of $100 million over the three-year period from July
1, 1993 to June 30, 1996 due to the closing. There can be no guarantee that the
actual cost will not be more or less than the State's estimate. Budgetary
General Fund revenues and expenditures for fiscal 1993 were $3.673 billion and
$3.521 billion, respectively. There was a $151 million surplus of which $33.7
million was deposited into the General Reserve Fund ("Rainy Day Fund") bringing
its total to $100 million. Fiscal 1994 had budgeted revenues and expenditures of
$3.828 billion and $3.795 billion, respectively. No new taxes were implemented.
Fiscal 1994 ended with a General Fund surplus of $248 million. The General
Reserve Fund is now at its fully funded level of $110.2 million. Fiscal 1995 has
budgeted $3.93 billion for expenditures with no new taxes expected.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $58,318,147. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$201,026 (equivalent to 0.33% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $198,498 (equivalent to 0.33% of the Portfolio's average daily
net assets for such year). For the period from the Portfolio's start of
business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid BMR advisory fees of $106,785 (equivalent to 0.31% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $149,516 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $452,132 and the Principal Underwriter
received approximately $226,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $2,245,000 (which amount was
equivalent to 3.9% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $99,151, of which $92,578 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $692.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $18,253 on portfolio security transactions aggregating
$136,816,360 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the period from the start of business,
February 1, 1994, to the fiscal year ended August 31, 1994, the Portfolio paid
no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight .......... $343 $1,129(2) $142,500(4)
Samuel L. Hayes, III ...... 316 1,308(3) 153,750(5)
Norton H. Reamer .......... 314 1,268 142,500
John L. Thorndike ......... 318 1,348 147,500
Jack L. Treynor ........... 341 1,274 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $424 of deferred compensation.
(3) Includes $446 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from October 2, 1992 through August 31, 1996 and for the one-year period ended
August 31, 1996.
<PAGE>
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 10/2/92* $1,000 $1,214.10 $1,184.10 21.41% 5.07% 18.41% 4.40%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,049.16 $ 999.16 4.92% 4.92% -0.08% -0.08%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on October 2, 1992.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.61%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.61% would be 7.18%, assuming a
combined federal and State tax rate of 35.83%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 16.2% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance South Carolina Tax Free Fund to
EV Marathon South Carolina Tax Free Fund on February 1, 1994 and to EV Marathon
South Carolina Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
South Carolina State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND SOUTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- SC STATE --------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 58,151 - $121,300 $ 96,901 - $147,700 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$121,301 - $263,750 $147,701 - $263,750 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $263,750 Over $263,750 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
</TABLE>
*Net amount subject to federal and South Carolina personal income tax after
deductions and exemptions.
+The first tax bracket is calculated using the highest South Carolina tax rate
within the bracket. Taxpayers with taxable income within this bracket may have
a lower combined tax bracket and taxable equivalent yield than indicated above.
The combined tax brackets assume that South Carolina taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. The
applicable federal tax rates within the brackets set forth above are 15%, 28%,
31%, 36% and 39.6% over the same ranges of income. The assumed South Carolina
State income tax rate is 7%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including South Carolina State income tax)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and South Carolina personal income taxes, other
income received by the Portfolio and allocated to the Fund may be taxable. The
table does not take into account state or local taxes, if any, payable on Fund
distributions except for South Carolina personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credit that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON TENNESSEE MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Tennessee State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Tennessee Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Tennessee considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Tennessee issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Tennessee issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Tennessee's State Constitution requires that (1) the total expenditures of
the State for any fiscal year shall not exceed the State's revenues and
reserves, including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations from
State tax revenues exceed the estimated rate of growth of the State's economy.
In the past, the Governor and the General Assembly have had to restrict
expenditures to comply with the State Constitution.
The Tennessee economy generally tends to rise and fall in a roughly parallel
manner with the U.S. economy. Like the U.S. economy, the Tennessee economy
entered a recession in the last half of 1990 which continued throughout 1991 and
into 1992 as the Tennessee indexes of coincident and leading economic indicators
trended downward throughout the period. However, the Tennessee economy gained
strength during the latter part of 1992 and this renewed vitality steadily
continued through 1993, 1994 and into 1995. The latter half of 1995 and the
first part of 1996 has seen the State's economy become slightly inconsistent in
its performance, with most 1996 economic data revealing some downward movement
in the leading economic index. However, many experts believe that the State will
achieve modest economic gains in 1996.
State revenue collections for 1996 are falling below projections, possibly
requiring the State to reduce expenditures for the fiscal year in order to avoid
depletion of the rainy-day fund. The State's rainy-day fund remained constant
from December 1994 to December 1995 at $101 million and remains so as of July 1,
1996.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $56,065,353. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$181,502 (equivalent to 0.31% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $177,788 (equivalent to 0.31% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $125,060 (equivalent to 0.28% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $121,384 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $425,503 and the Principal Underwriter
received approximately $214,000 in CDSCs imposed on early redeeming
shareholders. These sales commissions and CDSCs paid to the Principal
Underwriter reduced Uncovered Distribution Charges under the Plan. As at August
31, 1996, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $2,037,000
(which amount was equivalent to 3.7% of the Fund's net assets on such date).
During the fiscal year ended August 31, 1996, the Fund paid or accrued service
fees under the Plan aggregating $92,921, of which $92,578 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $602.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $9,892 on portfolio security transactions aggregating $85,993,505
to firms which provided some research services to BMR or its affiliates
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- -------- -------------- ------------
Donald R. Dwight ...... $343 $1,129(2) $142,500(4)
Samuel L. Hayes, III .. 316 1,308(3) 153,750(5)
Norton H. Reamer ...... 314 1,268 142,500
John L. Thorndike ..... 318 1,348 147,500
Jack L. Treynor ....... 341 1,274 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $424 of deferred compensation.
(3) Includes $446 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Cynthia J. Clemson (33) is a Vice
President of the Portfolio. Ms. Clemson has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from August 25, 1992 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 8/25/92* $1,000 $1,255.17 $1,235.17 25.52% 5.82% 23.52% 5.39%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,051.55 $1,001.55 5.16% 5.16% 0.16% 0.16%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on August 25, 1992.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.48%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.48% would be 6.91%, assuming a
combined federal and State tax rate of 35.14%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 10.9% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Tennessee Tax Free Fund to EV
Marathon Tennessee Tax Free Fund on February 1, 1994 and to EV Marathon
Tennessee Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Tennessee State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND TENNESSEE STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TN STATE --------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $263,750 Over $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
</TABLE>
*Net amount subject to federal and Tennessee personal income tax after
deductions and exemptions.
+The combined tax brackets assume that Tennessee taxes are itemized deductions
for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal tax
rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over
the same ranges of income. The assumed Tennessee State income tax rate is 6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Tennessee State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Tennessee personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Tennessee personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON VIRGINIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Virginia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Virginia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Virginia issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Virginia issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Commonwealth of Virginia has had a tradition of low debt, and a large
proportion of its general obligation bonds has been supported by particular
revenue-producing projects. However, a trend towards more use of non-general
obligation debt, which is not subject to constitutional limits on borrowing, is
now changing the Commonwealth's debt profile. In recent years, the Commonwealth
has expanded its limited obligation borrowings through various financing
vehicles such as the Virginia Public Building Authority and the Virginia College
Building Authority, and has embarked upon a substantial transportation bonding
program to which certain increases in retail sales and motor vehicle-related
taxes enacted in 1986 are dedicated. The General Fund is the Commonwealth's
major operating fund and accounts for about half of Commonwealth expenditures.
It covers all functions except highways and Federal grant disbursements, for
which there are special revenue funds.
While the Commonwealth has had a long history of sound financial operations,
variations of a cyclical nature have occurred during the past several years.
During fiscal year 1992, financial operations were somewhat more favorable than
expected. Revenues of $5.6 billion exceeded expenditures by approximately $150
million with $44 million in increased revenues and the balance in decreased
expenditures ordered by the Governor in December of 1991. The closing balance at
June 30, 1992 was $195.1 million, of which $142.3 million will be
reappropriated, leaving $52.8 million as an unreserved, undesignated balance,
the first such balance in four years. The fiscal 1993 ending balance for the
General Fund was $331.8 million of which $59.7 is unreserved, undesignated.
Revenues for the 1993 fiscal year were 8.9% higher than fiscal year 1992, a $103
million increase. At the close of the biennium ending June 30, 1994, the Fund
balance amounted to $518.7 million of which $81 million was reserved, including
$79.9 million for the Revenue Stabilization Fund. Preliminary results for fiscal
1995 indicate a general fund surplus of $65 million.
Virginia's economy is generally affected by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of Virginia
are manufacturing (such as electronic equipment, shipbuilding and chemical
products), minerals (chiefly coal), service sector occupations (including
banking and insurance), agriculture and tourism. Unemployment rates are
typically below the national average, but because of a large military and
civilian government employment component, and the related civilian employment, a
substantial decrease in defense or other governmental spending could have a
material adverse effect on both the unemployment rate and the economy of the
Commonwealth in general.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $177,644,321. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$811,731 (equivalent to 0.43% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $834,074 (equivalent to 0.44% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $744,841 (equivalent to 0.43% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust as required by Rule
12b-1. During the fiscal year ended August 31, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $269,358 on sales of Fund shares.
During the same period, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $1,402,507 and the Principal
Underwriter received approximately $604,000 in CDSCs imposed on early redeeming
shareholders. The sales commissions and CDSCs paid to the Principal Underwriter
reduced Uncovered Distribution Charges under the Plan. As at August 31, 1996,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $5,877,000 (which amount was
equivalent to 3.3% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $317,860, of which $316,579 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1996, the Fund paid the Principal
Underwriter $2,402.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $50,618 on portfolio security transactions aggregating
$247,838,146 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight ...... $687 $2,091(2) $142,500(4)
Samuel L. Hayes, III .. 632 2,192(3) 153,750(5)
Norton H. Reamer ...... 628 2,147 142,500
John L. Thorndike ..... 636 2,238 147,500
Jack L. Treynor ....... 681 2,228 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $784 of deferred compensation.
(3) Includes $737 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) is a Vice President
of the Portfolio. Mr. Browse has served as a Vice President of the Portfolio
since December 1, 1995. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse is an
officer of various investment companies managed by Eaton Vance or BMR. Prior
to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity
Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from July 26, 1991 through August 31, 1996 and for the one-year period ended
August 31, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/96 ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 7/26/91* $1,000 $1,351.55 $1,341.55 35.16% 6.08% 34.16% 5.93%
5 Years
Ended
8/31/96 8/31/91 $1,000 $1,338.12 $1,318.12 33.81% 6.00% 31.81% 5.68%
1 Year
Ended
8/31/96 8/31/95 $1,000 $1,046.83 $ 996.83 4.68% 4.68% -0.32% -0.32%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on July 26, 1991.
** No CDSC is imposed on certain redemptions. See the Fund's current
Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.46%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.46% would be 6.86%, assuming a
combined federal and State tax rate of 34.97%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 15.8% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Virginia Tax Free Fund to EV
Marathon Virginia Tax Free Fund on February 1, 1994 and to EV Marathon Virginia
Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Virginia State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND VIRGINIA STATE TAX EXEMPT YIELD OF:
- ----------------------- --------------------- VA STATE --------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------------------------- ------------- --------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 19.89% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.14 5.89 6.63 7.37 8.10 8.84 9.58 10.32
$ 58,151 - $121,300 $ 96,901 - $147,700 34.97 6.15 6.92 7.69 8.46 9.23 10.00 10.76
$121,301 - $263,750 $147,701 - $263,750 39.68 6.63 7.46 8.29 9.12 9.95 10.78 11.60
Over $263,750 Over $263,750 43.07 7.03 7.90 8.78 9.66 10.54 11.42 12.30
</TABLE>
*Net amount subject to federal and Virginia personal income tax after deductions
and exemptions.
+The first tax bracket is calculated using the highest Virginia tax rate within
the bracket. Taxpayers with taxable income within such brackets may have lower
combined tax brackets and taxable equivalent yields than indicated above. The
combined tax brackets assume that Virginia taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%.
The assumed Virginia State income tax rate is 5.75%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Virginia State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Virginia personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for regular Virginia personal income taxes. It should also
be noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, and
regular Virginia personal income tax, is treated as a tax preference item which
could subject the recipient to the federal and Virginia alternative minimum
taxes. The illustrations assume that the federal and Virginia alternative
minimum taxes are not applicable and do not take into account any tax credits
that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
[Logo]
EV MARATHON MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 1, 1997
EV Marathon Alabama Municipals Fund
EV Marathon Arkansas Municipals Fund
EV Marathon Georgia Municipals Fund
EV Marathon Kentucky Municipals Fund
EV Marathon Louisiana Municipals Fund
EV Marathon Maryland Municipals Fund
EV Marathon Missouri Municipals Fund
EV Marathon North Carolina Municipals Fund
EV Marathon Oregon Municipals Fund
EV Marathon South Carolina Municipals Fund
EV Marathon Tennessee Municipals Fund
EV Marathon Virginia Municipals Fund
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(617)482-8260
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-TFC12/1SAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1997
EV TRADITIONAL MUNICIPAL FUNDS
<TABLE>
<S> <C>
EV TRADITIONAL ALABAMA MUNICIPALS FUND EV TRADITIONAL MISSOURI MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND EV TRADITIONAL VIRGINIA MUNICIPALS FUND
24 Federal Street, Boston, Massachusetts 02110
(800) 225-6265
</TABLE>
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund"), their
corresponding Portfolios and certain other series of Eaton Vance Municipals
Trust (the "Trust"). Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate Part I includes cross-references
to the relevant sections of Part II. This Statement of Additional Information is
sometimes referred to herein as the "SAI".
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ...................... 1
Investment Restrictions ............................................... 8
Trustees and Officers ................................................. 9
Investment Adviser and Administrator .................................. 11
Custodian ............................................................. 13
Service for Accumulation .............................................. 14
Service for Withdrawal ................................................ 15
Determination of Net Asset Value ...................................... 15
Investment Performance ................................................ 15
Taxes ................................................................. 17
Principal Underwriter ................................................. 19
Service Plan .......................................................... 20
Portfolio Security Transactions ....................................... 20
Other Information ..................................................... 22
Independent Certified Public Accountants .............................. 23
Financial Statements .................................................. 23
Appendix .............................................................. 24
PART II
EV Traditional Alabama Municipals Fund ................................ a-1
EV Traditional Arkansas Municipals Fund ............................... b-1
EV Traditional Georgia Municipals Fund ................................ c-1
EV Traditional Kentucky Municipals Fund ............................... d-1
EV Traditional Louisiana Municipals Fund .............................. e-1
EV Traditional Maryland Municipals Fund ............................... f-1
EV Traditional Missouri Municipals Fund ............................... g-1
EV Traditional North Carolina Municipals Fund ......................... h-1
EV Traditional Oregon Municipals Fund ................................. i-1
EV Traditional South Carolina Municipals Fund ......................... j-1
EV Traditional Tennessee Municipals Fund .............................. k-1
EV Traditional Virginia Municipals Fund ............................... l-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JANUARY 1, 1997 AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS COMBINED STATEMENT
OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND
PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this SAI and not
otherwise defined have the meanings given them in the Fund's Prospectus. The
Fund is subject to the same investment policies as those of the Portfolio. The
Fund currently seeks to achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is exempt from federal income taxes and is not a tax preferred item for
purposes of the federal alternative minimum tax: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential governmental
functions; (ii) certain obligations issued before August 8, 1986 for the benefit
of non-governmental persons or entities; and (iii) certain "private activity
bonds" issued after August 7, 1986, which include "qualified Section 501(c)(3)
bonds" or refundings of certain obligations included in the second category. In
assessing the federal income tax treatment of interest on any municipal
obligation, the Portfolio will generally rely on an opinion of the issuer's
counsel (when available) and will not undertake any independent verification of
the basis for the opinion. The two principal classifications of municipal bonds
are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax, but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the AMT. For corporate shareholders, the Fund's distributions
derived from interest on all municipal obligations (whenever issued) is included
in "adusted current earnings" for purposes of the AMT as applied to corporations
(to the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than one
year) purchased after April 30, 1993 other than, in general, at their original
issue, is taxable as ordinary income. A long-term debt obligation is generally
treated as acquired at a market discount if purchased after its original issue
at a price less than (i) the stated principal amount payable at maturity, in the
case of an obligation that does have original issue discount or (ii) in the case
of an obligation that does have original issue discount, the sum of the issue
price and any original issue discount that accrued before the obligation was
purchased, subject to a de minimis exclusion.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are in most cases revenue bonds and are
generally not secured by the taxing power of the municipality, but are usually
secured by the revenues derived by the authority from payments of the industrial
user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of the Investment Adviser) to evaluate or protect
any real estate, facilities or other assets securing any such obligation or
acquired by the Portfolio as a result of any such event, and the Portfolio may
also manage (or engage other persons to manage) or otherwise deal with any real
estate, facilities or other assets so acquired. The Portfolio anticipates that
real estate consulting and management services may be required with respect to
properties securing various municipal obligations in its portfolio or
subsequently acquired by the Portfolio. The Portfolio will incur additional
expenditures in taking protective action with respect to portfolio obligations
in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of such obligations will normally fluctuate with
changes in interest rates, and therefore the net asset value of the Portfolio
will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with the Portfolio's policy of concentrating its investments in
particular State issuers of municipal obligations, see "Risks of Concentration"
in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in industrial revenue
bonds might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state and local authorities. Since
the bonds are normally secured only by the revenues of each facility and not by
state or local government tax payments, they are subject to a wide variety of
risks. Primarily, the projects must maintain adequate occupancy levels to be
able to provide revenues sufficient to meet debt service payments. Moreover,
since a portion of housing, medical care and other services may be financed by
an initial deposit, it is important that the facility maintain adequate
financial reserves to secure estimated actuarial liabilities. The ability of
management to accurately forecast inflationary cost pressures is an important
factor in this process. The facilities may also be affected adversely by
regulatory cost restrictions applied to health care delivery in general,
particularly state regulations or changes in Medicare and Medicaid payments or
qualifications, or restrictions imposed by medical insurance companies. They may
also face competition from alternative health care or conventional housing
facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Accordingly, the Portfolio may be adversely affected by local political and
economic conditions and developments within Puerto Rico affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross domestic
product and is more diversified than during earlier phases of Puerto Rico's
industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and manufacturing
(16.4%). These three sectors represent 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
This decline was broad based among all manufacturing industries. The North
American Free Trade Agreement ("NAFTA"), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico. The February, 1995 unemployment rate was 12.5%, down from 16% for
1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the Federal government. Most Federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Code was amended and provided for two alternative limitations
to the Section 936 credit. The first option will limit the credit against such
income to 40% of the credit allowable under current law, with a five year
phase-in period starting at 60% of the allowable credit. The second option is a
wage and depreciation based credit. The reduction of the tax benefits to those
U.S. companies with operations in Puerto Rico may lead to slower growth in the
future. Furthermore, federal policymakers have proposed the total elimination of
Section 936, phased out over ten years, as a budget-balancing measure. There can
be no assurance that these modifications will not lead to a weakened economy, a
lower rating on Puerto Rico's debt or lower prices for Puerto Rican bonds that
may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. The measure was defeated, with 48.5% voting
to remain a Commonwealth, 46% voting for statehood and 4% voting for
independence. Retaining Commonwealth status will leave intact the current
relationship with the federal government. There can be no assurance that the
statehood issue will not be brought to a vote in the future. A successful
statehood vote in Puerto Rico would then require the U.S. Congress to ratify the
election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to 101,809
in 1990. The economy is heavily reliant on the tourism industry, with roughly
43% of non-agricultural employment in tourist-related trade and services. As of
June, 1996, unemployment stood at 4.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the Federal excise tax on
rum exports. Tax revenues rebated by the Federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
During this past hurricane season, several hurricanes caused extensive damage,
which has had a negative impact on revenue collections. There is currently no
rated, unenhanced Virgin Islands debt outstanding although there is unrated debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. Population, 133,000 in 1990, is up 26% from the 1980 census level. The
U.S. military is a key component of Guam's economy. The Federal government
directly comprises more than 10% of the employment base, with a substantial
component of the service sector to support these personnel. The Naval Air
Station, one of several U.S. military facilities on the island, has been slated
for closure by the Defense Base Closure and Realignment Committee; however, the
administration plans to use these facilities to expand the Island's commercial
airport. Guam is also heavily reliant on tourists, particularly the Japanese.
For 1995, the government realized a General Fund operating surplus. The
administration has taken steps to improve its financial position; however, there
are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated BBB by S&P with a negative outlook.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the Government issuer) have
evolved as a means for Governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of a
market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the same
time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of municipal obligations or
changes in the investment objectives of investors. Such trading may be expected
to increase the portfolio turnover rate, which may increase capital gains and
the expenses incurred in connection with such trading. The Portfolio anticipates
that its annual portfolio turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-issued"
basis, that is, delivery and payment for the securities normally taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the refinancing of an
issuer's outstanding indebtedness. Refunding contracts generally require the
issuer to sell and the Portfolio to buy such securities on a settlement date
that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. When the Portfolio commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the issuer
and changes in the level of interest rates (i.e. appreciation when interest
rates decline and depreciation when interest rates rise). Therefore, to the
extent that the Portfolio remains substantially fully invested at the same time
that it has purchased securities on a when-issued basis, there will be greater
fluctuations in the Portfolio's net asset value than if it solely set aside cash
to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 (the " 1940 Act") and Rule 5b-2 thereunder. The Portfolio would
anticipate using these obligations as cash equivalents pending longer term
investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Longer term fixed-rate bonds may give the holder a right to
request redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long term
bonds (protecting to some degree against a rise in interest rates) while
providing greater opportunity than comparable intermediate term bonds, because
the Portfolio may retain the bond if interest rates decline. By acquiring these
kinds of obligations the Portfolio obtains the contractual right to require the
issuer of the security or some other person (other than a broker or dealer) to
purchase the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement with the seller or some
other person. Since this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not assign any
separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put or demand features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. 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. Securities lending involves administration expenses,
including finders' fees. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the Portfolio's total assets. The
Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities and (ii) futures
contracts on securities indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States exchange or
board of trade. The Portfolio will be required, in connection with transactions
in futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such futures
and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Portfolio from closing out
positions and limiting its losses.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price fluctuations
in securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases, when
it is economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the corresponding
purchase of securities. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Code for maintaining qualification of the Fund as a
regulated investment company for federal income tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities, the lending of Portfolio
securities or futures contracts and options (other than options that the
Portfolio has purchased) expose the Portfolio to an obligation to another party.
The Portfolio will not enter into any such transactions unless it owns either
(1) an offsetting ("covered") position in securities or other options or futures
contracts or (2) cash or liquid securities with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. The
Portfolio will comply with Commission guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash, or liquid
securities in a segregated account with its custodian in the prescribed amount.
The securities in the segregated account will be marked to market daily.
Assets used as cover or held in a segregated account cannot be sold while
the position requiring coverage or segregation is outstanding unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Portfolio's assets to segregated accounts or cover could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of the Fund present or
represented by proxy at a meeting if the holders of more than 50% of the shares
are present or represented at the meeting or (b) more than 50% of the shares of
the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance margin
in connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short and unless not more than
25% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purpose of deferring realization of gain or loss for federal income
tax purposes; (c) invest more than 15% of net assets in investments which are
not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of the
Trust or the Portfolio, or its delegate, determines to be liquid; or (d)
purchase or retain in its portfolio any securities issued by an issuer any of
whose officers, directors, trustees or security holders is an officer or Trustee
of the Trust or the Portfolio or is a member, officer, director or trustee of
any investment adviser of the Trust or the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value).
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, other than a subsequent
rating change below investment grade made by a rating service, will not compel
the Fund or the Portfolio, as the case may be, to dispose of such security or
other asset. Where applicable and notwithstanding the foregoing, under normal
market conditions the Fund and the Portfolio must take actions necessary to
comply with the policy of investing at least 65% of total assets in a particular
state equity securities. Moreover, the Fund and Portfolio must always be in
compliance with the borrowing policy set forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), a wholly-owned subsidiary of
Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees who
are "interested persons" of the Trust, the Portfolio, BMR, Eaton Vance, EVC or
EV, as defined in the 1940 Act, by virtue of their affiliation with any one or
more of the Trust, the Portfolio, BMR, Eaton Vance, EVC or EV, are indicated by
an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (65), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Vice President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (61), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (61), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Director, Fiduciary Company Incorporated, Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (53), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of
the Trust and the Portfolio on December 13, 1993.
ROBERT B. MACINTOSH (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV.
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
MacIntosh was elected Vice President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (51), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (65), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (39), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Woodubury was elected Assistant Secretary on June 19,
1995.
For any additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund, including administrative
services, transfer agency, custodial and fund accounting and distribution
services, and (ii) all other matters in which Eaton Vance or its affiliates has
any actual or potential conflict of interest with the Fund or its shareholders.
The Nominating Committee is comprised of four Trustees who are not
"interested persons" as that term is defined under the 1940 Act ("noninterested
Trustees"). The Committee has four-year staggered terms, with one member
rotating off the Committee to be replaced by another noninterested Trustee of
the Trust. The purpose of the Committee is to recommend to the Board nominees
for the position of noninterested Trustee and to assure that at least a majority
of the Board of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian and transfer agent of the Fund and of
the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the Portfolio in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee. Neither the Portfolio nor
the Trust has a retirement plan for its trustees.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of over $16 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to over 150 mutual funds,
individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Bombay. Together Eaton Vance and Lloyd George manage over
$18 billion in assets. Eaton Vance mutual funds are distributed by Eaton Vance
Distributors both within the United States and offshore.
Eaton Vance Distributors believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 10 limited maturity portfolios, which serve as
investment vehicles for over 100 mutual funds with varying pricing options. A
staff of 32 (including 9 portfolio managers and 9 credit specialists) is
responsible for the day-to-day management of over 3,500 issues in 47 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The investment philosophy of the municipal investment group is to:
seek value by avoiding unnecessary credit risk; build portfolios one security at
a time; and take a long-term approach to managing market risk. Over the
long-term, the group seeks to maximize tax-free income by keeping portfolios
fully invested (rather than trying to "time the market" for short-term results)
and reduce potential capital losses due to poor credit quality. Diligent and
continuing research and analysis are a critical component of the municipal
investment group's investment philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance tax-free
portfolios. For the identity of the Portfolio's portfolio manager, see the
Fund's current Propectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR and the
portfolio manager of single-state, tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and any legal obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto, to the extent not covered by
insurance.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part
II.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others. The Agreement also
provides that BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under that Agreement,
in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the Fund,
Eaton Vance has been engaged to administer the Fund's affairs, subject to the
supervision of the Trustees of the Trust, and shall furnish for the use of the
Fund office space and all necessary office facilities, equipment and personnel
for administering the affairs of the Fund. For additional information about the
Administrator, see "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and any legal obligation of the Trust to indemnify its Trustees and
officers with respect thereto, to the extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and
Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons and
John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is
vice chairman and Mr. Hawkes is president and chief executive officer of EVC,
BMR, Eaton Vance and EV. All of the issued and outstanding shares of Eaton
Vance and EV are owned by EVC. All of the issued and outstanding shares of BMR
are owned by Eaton Vance. All shares of the outstanding Voting Common Stock of
EVC are deposited in a Voting Trust, which expires on December 31, 1997, the
Voting Trustees of which are Messrs. Clay, Gardner, Hawkes, Rowland and Thomas
E. Faust, Jr. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers or officers and Directors of EVC and EV. As
of January 1, 1997, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Faust owned 15% and 13%,
respectively, of such voting trust receipts. Mr. Otis is an officer of the
Trust and the Portfolio and is a member of the EVC, BMR, Eaton Vance and EV
organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy, O'Connor
and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders are officers of the
Trust and/or the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
EVC owns all of the stock of Energex Energy Corporation, which engages in
oil and gas exploration and development. In addition, Eaton Vance owns all of
the stock of Northeast Properties, Inc., which is engaged in real estate
investment. EVC owns all of the stock of Fulcrum Management, Inc. and MinVen
Inc., which are engaged in precious metal mining, venture investment and
management. EVC also owns 24% of the Class A shares of Lloyd George Management
(B.V.I.) Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV
may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
CUSTODIAN
IBT acts as custodian for the Fund and the Portfolio. IBT has the custody of
all cash and securities representing the Fund's interest in the Portfolio, has
custody of all the Portfolio's assets, maintains the general ledger of the
Portfolio and the Fund, and computes the daily net asset value of interests in
the Portfolio and the net asset value of shares of the Fund. In such capacity it
attends to details in connection with the sale, exchange, substitution, transfer
or other dealings with the Portfolio's investments, receives and disburses all
funds and performs various other ministerial duties upon receipt of proper
instructions from the Fund and the Portfolio. IBT charges fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by a
credit for cash balances of the particular investment company at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
particular investment company's average daily collected balances for the week.
Landon T. Clay, a Director of EVC and an officer, Trustee or Director of other
entities in the Eaton Vance organization, owns approximately 13% of the voting
stock of Investors Financial Services Corp., the holding company parent of IBT.
Management believes that such ownership does not create an affiliated person
relationship between the Fund or the Portfolio and IBT under the Investment
Company Act of 1940. For the custody fees that the Portfolio and the Fund paid
to IBT, see "Fees and Expenses" in the Fund's Part II.
IBT also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the Commission, for which
it receives a separate fee.
SERVICES FOR ACCUMULATION
The following services (which will become available on February 1, 1996) are
voluntary, involve no extra charge, other than the sales charge included in the
offering price, and may be changed or discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is anticipated
that $50,000 or more of Fund shares and shares of the other continuously offered
open-end funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund will be purchased within a 13-month period, a Statement
of Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the Transfer Agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. For sales
charges and other information on quantity purchases, see "How to Buy Fund
Shares" in the Fund's current Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Fund shares is calculated by taking the dollar
amount of the current purchase and adding it to the value (calculated at the
maximum current offering price) of the shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate. For example, if the shareholder
owned shares valued at $30,000 of the Fund, and purchased an additional $20,000
of Fund shares, the sales charge for the $20,000 purchase would be at the rate
of 2.75% of the offering price (2.83% of the net amount invested) which is the
rate applicable to single transactions of $50,000. For sales charges on quantity
purchases, see "How to Buy Fund Shares" in the Fund's current Prospectus. Shares
purchased (i) by an individual, his or her spouse and their children under the
age of twenty-one, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information to
permit verification that the purchase order qualifies for the accumulation
privilege. Confirmation of the order is subject to such verification. The Right
of Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
SERVICE FOR WITHDRAWAL
The Trust's Transfer Agent will send to the shareholder regular monthly or
quarterly payments of any permitted amount designated by the shareholder (see
"Eaton Vance Shareholder Services -- Withdrawal Plan" in the Fund's current
Prospectus) based upon the value of the shares held. The checks will be drawn
from share redemptions and hence, are a return of principal. Income dividends
and capital gains distributions in connection with withdrawal accounts will be
credited at net asset value as of the record date for each distribution.
Continued withdrawals in excess of current income will eventually use up
principal, particularly in a period of declining market prices. A shareholder
may not have a withdrawal plan in effect at the same time he or she has
authorized Bank Automated Investing or is otherwise making regular purchases of
Fund shares. The shareholder, the Transfer Agent or the Principal Underwriter
will be able to terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transaction prices for most municipal obligations held by the Portfolio, and
such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing services uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by or at the direction of the Trustees of the
Portfolio. The Fund and the Portfolio will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interests in the Portfolio on
such prior day. Any additions or withdrawals for the current Portfolio Business
Day will then be recorded. Each investor's percentage of the aggregate interest
in the Portfolio will then be recomputed as a percentage equal to a fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the Portfolio Valuation Time on the prior Portfolio
Business Day plus or minus, as the case may be, the amount of the net additions
to or withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes the maximum sales charge is deducted from the initial $1,000
purchase order and that all distributions are reinvested at net asset value on
the reinvestment dates during the period. For further information concerning the
total return of the Fund, see "Performance Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing the net
investment income per share earned during a recent thirty-day period by the
maximum offering price (which includes the maximum sales charge) per share on
the last day of the period and annualizing the resulting figure. Net investment
income per share is calculated from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods, reduced by
accrued Fund expenses for the period with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
distributions during the period. Yield calculations will assume a maximum sales
charge equal to 3.75% of the public offering price. A taxable-equivalent yield
is computed by dividing the tax-exempt yield by 1 minus a stated rate. For the
yield and taxable-equivalent yield of the Fund, see "Performance Information" in
the Fund's Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or the effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current maximum offering price per share. The
Fund's effective distribution rate is computed by dividing the distribution rate
by the ratio (the days in a year divided by the accrual days of the monthly
period) used to annualize the most recent monthly distribution and reinvesting
the resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investors should note that the
Fund's yield is calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond investing,
which may include comparative performance information, evaluations of Fund
performance, charts and/or illustrations prepared by independent sources (such
as Lipper Analytical Services, CDA/Wiesenberger and Morningstar, Inc.; The Bond
Buyer, the Federal Reserve Board or The Wall Street Journal). The Fund may also
refer in investor publications to Tax Freedom Day, as computed by the Tax
Foundation, Washington, DC 20005, to help illustrate the value of tax free
investing, as well as other tax-related information. Information, charts, and
illustrations showing the effects of inflation and taxes (including their
effects on the dollar and the return on various investments) and compounding
earnings, may also be included in advertisements and materials furnished to
present and prospective investors.
Information about portfolio allocation and holdings of the Portfolio at a
particular date (including ratings assigned by independent ratings services such
as Moody's, S&P and Fitch) may be included in advertisements and other material
furnished to present and prospective shareholders. Such information may be
stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the tax equivalent
yield (or value) of the Fund to the after-tax yield (or value) of such other
investment vehicles. Such information may be in the form of hypothetical
illustrations. A bank certificate of deposit, unlike the Fund's shares, pays a
fixed rate of interest and entitles the depositor to receive the face amount of
the certificate of deposit at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike the
Fund's shares, bank certificates of deposit and bank money market deposit
accounts are insured by the Federal Deposit Insurance Corporation. A money
market mutual fund is designed to maintain a constant value of $1.00 per share
and, thus, a money market fund's shares are subject to less price fluctuation
than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
-- cost associated with aging parents;
-- funding a college education (including its actual and estimated
cost);
-- health care expenses (including actual and projected expenses);
-- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
-- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth credit analysis by investment professionals. In addition, by investing in
a municipal bond fund instead of individual bonds, and investor can avoid
dealing with the complexities of the municipal bond market, while benefitting
from the market access and lower transactions costs enjoyed by municipal bond
funds. Such information may also suggest the appropriateness of the Fund as an
investment for certain types of investors such as: conservative investors who
want higher after-tax income, but are concerned about the potential volatility
of long-term bonds or bond funds; dual-income couples in a high tax bracket; and
investors with long-term municipal bonds or fund portfolios who are seeking
diversification.
The Fund may provide information about Eaton Vance, its affiliates and other
investment advisers to the funds in the Eaton Vance Family of Funds in sales
material or advertisements provided to investors or prospective investors. Such
material or advertisements may also provide information on the use of investment
professionals by such investors.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated, and intends to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains in accordance with
the timing requirements imposed by the Code, so as to avoid any federal income
or excise tax on the Fund. The Fund so qualified for its fiscal year ended
August 31, 1996. Because the Fund invests its assets in the Portfolio, the
Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax under Code Section
103(a). For purposes of applying this 50% requirement, the Fund will be deemed
to own its proportionate share of each of the assets of the Portfolio, and the
Portfolio currently intends to invest its assets in a manner such that the Fund
can meet this 50% requirement. Interest on certain municipal obligations is
treated as a tax preference item for purposes of the AMT. Shareholders of the
Fund are required to report tax-exempt interest on their federal income tax
returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of discount with respect to certain stripped municipal obligations or
their stripped coupons, and certain realized gains or income attributable to
accrued market discount. Any distributions by the Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the Portfolio and allocated to the Fund. Certain
distributions of the Fund declared in October, November or December and paid the
following January will be taxed to shareholders as if received on December 31 of
the year in which they are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC for federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain certifications required by the Internal Revenue Service (the "IRS"), as
well as shareholders with respect to whom the Fund has received notification
from the IRS or a broker, may be subject to "backup" withholding of Federal
income tax from the Fund's taxable dividends and distributions and the proceeds
of redemptions (including repurchases and exchanges), at a rate of 31%. An
individual's taxpayer identification number is generally his or her social
security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through Authorized Firms which have agreements with the Principal
Underwriter. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
The public offering price is the net asset value next computed after receipt
of the order, plus, where applicable, a variable percentage (sales charge)
depending upon the amount of purchase as indicated by the sales charge table set
forth in the Fund's current Prospectus (see "How to Buy Fund Shares"). Such
table is applicable to purchases of the Fund alone or in combination with
purchases of the other funds offered by the Principal Underwriter, made at a
single time by (i) an individual, or an individual, his spouse and their
children under the age of twenty-one, purchasing shares for his or their own
account, and (ii) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of Fund shares,
alone or in combination with purchases of any of the other funds offered by the
Principal Underwriter, through one dealer aggregating $50,000 or more made by
any of the persons enumerated above within a thirteen-month period starting with
the first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is merged
or consolidated with or acquired by the Fund. Normally no sales charges will be
paid in connection with an exchange of Fund shares for the assets of such
investment company. Shares may be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio or any
investment company for which Eaton Vance or BMR acts as investment adviser, any
investment advisory, agency, custodial or trust account managed or administered
by Eaton Vance or by any parent, subsidiary or other affiliate of Eaton Vance,
or any officer, director or employee of any parent, subsidiary or other
affiliate of Eaton Vance. The terms "officer," "director," "trustee," "general
partner" or "employee" as used in this paragraph include any such person's
spouse and minor children, and also retired officers, directors, trustees,
general partners and employees and their spouses and minor children. Shares of
the Fund may also be sold at net asset value to registered representatives and
employees of Authorized Firms and to the spouses and children under the age of
21 and beneficial accounts of such persons.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors and other selling literature and of advertising are borne by
the Principal Underwriter. The fees and expenses of qualifying and registering
and maintaining qualifications and registrations of the Fund and its shares
under federal and state securities laws are borne by the Fund. The Distribution
Agreement is renewable annually by the Board of Trustees of the Trust (including
a majority of its Trustees who are not interested persons of the Principal
Underwriter or the Trust), may be terminated on six months' notice by either
party and is automatically terminated upon assignment. The Principal Underwriter
distributes Fund shares on a "best efforts" basis under which it is required to
take and pay for only such shares as may be sold. The Principal Underwriter
allows Authorized Firms discounts from the applicable public offering price
which are alike for all Authorized Firms. The Principal Underwriter may allow,
upon notice to all Authorized Firms with whom it has agreements, discounts up to
the full sales charge during the periods specified in the notice. See "How to
Buy Fund Shares" in the Fund's current Prospectus for the discounts allowed to
Authorized Firms on the sale of Fund shares. During periods when the discount
includes the full sales charge, such Authorized Firms may be deemed to be
underwriters as that term is defined in the Securities Act of 1933. For the
amount of sales charges for sales of Fund shares paid to the Principal
Underwriter (and Authorized Firms), see "Fees and Expenses" in the Fund's Part
II.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
the Fund's Part II.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the service fee requirements of the revised sales charge rule
of the National Association of Securities Dealers, Inc. (the "NASD") (Management
believes service fee payments are not distribution expenses governed by Rule
12b-1 under the 1940 Act, but has chosen to have the Plan approved as if the
Rule were applicable.) The following supplements the discussion of the Plan
contained in the Fund's Prospectus.
The Plan remains in effect from year to year, provided such continuance is
approved by a vote of both a majority of (i) those Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Noninterested Trustees") and (ii) all of the Trustees then in office, cast in
person at a meeting (or meetings) called for the purpose of voting on this Plan.
The Plan may be terminated any time by vote of the Noninterested Trustees or by
a vote of a majority of the outstanding voting securities of the Fund. The Plan
has been approved by the Board of Trustees of the Trust, including the
Noninterested Trustees.
Under the Plan, the President or a Vice President of the Trust shall provide
to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described herein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees of the Trust as prescribed by the Rule. So long as the
Plan is in effect, the selection and nomination of Trustees who are not
interested persons of the Trust shall be committed to the discretion of the
Trustees who are not such interested persons. The Trustees have determined that
in their judgment there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders. For the service fees paid by the Fund under the
Plan, see "Fees and Expenses" in the Fund's Part II.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Fund or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the NASD, which rule provides that no firm which
is a member of the NASD shall favor or disfavor the distribution of shares of
any particular investment company or group of investment companies on the basis
of brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate in a manner it deems equitable portfolio security
transactions among the Portfolio and the portfolios of its other investment
accounts whenever decisions are made to purchase or sell securities by the
Portfolio and one or more of such other accounts simultaneously. In making such
allocations, the main factors to be considered are the respective investment
objectives of the Portfolio and such other accounts, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the opinions
of the persons responsible for recommending investments to the Portfolio and
such accounts. However, there may be instances when the Portfolio will not
participate in a securities transaction that is allocated among other accounts.
While these procedures could have a detrimental effect on the price or amount of
the securities available to the Portfolio from time to time, it is the opinion
of the Trustees of the Trust and the Portfolio that the benefits available from
the BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" and "EV" in the Fund's name and may use the words "Eaton
Vance" and "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable Federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The Portfolio's Declaration of Trust 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.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche, LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Funds' most
recent Annual Report accompanies this SAI.
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolios listed below for the fiscal year ended August 31,
1996, as previously filed electronically with the Commission:
EV Traditional Alabama Municipals Fund
EV Traditional Arkansas Municipals Fund
EV Traditional Georgia Municipals Fund
EV Traditional Kentucky Municipals Fund
EV Traditional Louisiana Municipals Fund
EV Traditional Maryland Municipals Fund
EV Traditional Missouri Municipals Fund
EV Traditional North Carolina Municipals Fund
EV Traditional Oregon Municipals Fund
EV Traditional South Carolina Municipals Fund
EV Traditional Tennessee Municipals Fund
EV Traditional Virginia Municipals Fund
(Accession No. 0000950135-96-005148)
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
- ------------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL ALABAMA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Alabama State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Alabama Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Alabama considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Alabama issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Alabama issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Alabama's business cycle is closely related to the national economy, due to
its manufacturing based economy. The State's economy has changed little in the
past few years. Growth in machinery, aerospace and electronic manufacturing have
become increasingly important to the State. The present movement toward
diversification of the State's manufacturing base and a similar trend toward
enlargement and diversification of the service industries are expected to lead
to increased stability. With its strong natural gas and oil deposits, Alabama is
well positioned in energy markets. An important factor affecting the economy is
the State owned Port of Mobile which primarily handles coal exports and serves
as a major Gulf Coast port. The Port of Mobile is one of the nation's busiest
ports in tons of cargo handled.
Although manufacturing remains the largest employment sector, the State
economy has become less dependent on manufacturing. Strong growth in the service
and wholesale/retail trade sectors combined with a weakening manufacturing
sector has enabled the economy to become more diverse. However, its reliance on
the manufacturing sector remains significantly greater than the national
average. In the past several years, the loss of manufacturing jobs has been
primarily as a result of weakness in the durable good sector. Overall,
non-agricultural employment has steadily grown during the past five years.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $108,543,550. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$455,711 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $466,320 (equivalent to 0.40% of the Portfolio's average daily
daily net assets for such year). For the eleven months ended August 31, 1994,
the Portfolio paid BMR advisory fees of $373,047 (equivalent to 0.38%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
may be continued as described under "Investment Adviser and Administrator" in
Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995 and
for the period from the start of business, December 7, 1993, to the fiscal year
ended August 31, 1994, $15,321, $11,742 and $13,973, respectively, of the Fund's
operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be continued
as described under "Service Plan" in Part I. Prior to February 1, 1996, the Fund
made sales commission, distribution fee and service fee payments pursuant to a
Distribution Plan. During the period from September 1, 1995 to January 31, 1996,
the Principal Underwriter paid to Authorized Firms sales commissions of $24,709
under that Plan on sales of Fund shares. During the same period, the Fund paid
sales commission payments under that Plan to the Principal Underwriter
aggregating $28,584. During the fiscal year ended, August 31, 1996, CDSCs
aggregating approximately $115 were imposed on early redeeming shareholders and
paid to the Principal Underwriter. The CDSCs and sales commissions paid to the
Principal Underwriter reduced Uncovered Distribution Charges. As at August 31,
1996, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Distribution Plan amounted to approximately
$890,000 (which amount was equivalent to 14.3% of the Fund's net assets on such
date). This charge will be extinguished at no expense to the Fund on January 31,
1997. During the fiscal year ended August 31, 1996, the Fund paid or accrued
service fees under the Distribution Plan aggregating $15,306, of which $13,095
was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter. A portion of such fees was paid under the service fee
provisions of the Distribution Plan and the balance was paid under the existing
Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $1,310, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $190.00 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal years ended August 31, 1996, 1995 and 1994, the Portfolio
paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $34 $1,542(2) $142,500(4)
Samuel L. Hayes, III ...... 32 1,687(3) 153,750(5)
Norton H. Reamer .......... 31 1,645 142,500
John L. Thorndike ......... 32 1,729 147,500
Jack L. Treynor ........... 34 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) is a Vice President
of the Portfolio. Mr. Browse has served as a Vice President of the Portfolio
since June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse is an
officer of various investment companies managed by Eaton Vance or BMR. Prior
to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader at Fidelity
Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from May 1, 1992 through August
31, 1996 and for the one-year period ended August 31, 1995. The total return for
the period prior to the Fund's commencement of operations on December 7, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Such performance has not been adjusted
to reflect the change in the Fund's distribution fees and/or service fees and
certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------ ------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 5/1/92* $962.50 $1,256.04 30.57% 6.34% 25.60% 5.39%
1 Year Ended 8/31/96 8/31/95 $962.50 $1,015.34 5.49% 5.49% 1.53% 1.53%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto, Fund
shares redeemed within one year of their purchase are subject to a CDSC of 1%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.28%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.28% would be 6.53%, assuming a
combined federal and State tax rate of 34.45%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had a lower distribution rate and effective
distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 84.0% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Alabama Tax Free Fund to EV
Classic Alabama Municipals Fund on January 1, 1996 and to EV Traditional Alabama
Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Alabama State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND ALABAMA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ---------------------- AL STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 31.60% 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 58,151-$121,300 $ 96,901-$147,700 34.45% 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$121,301-$263,750 $147,701-$263,750 39.20% 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $263,750 Over $263,750 42.62% 6.97 7.84 8.71 9.59 10.46 11.33 12.20
* Net amount subject to federal and Alabama personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Alabama tax rate within the bracket. Taxpayers with taxable income within
this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax brackets
assume that Alabama taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same
ranges of income. The assumed Alabama State income tax rate is 5%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Alabama State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Alabama personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Alabama personal income taxes. It should also be noted
that the interest earned on certain "private activity" bonds issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax advisers for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL ARKANSAS MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Arkansas State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Arkansas Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Arkansas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Arkansas issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Arkansas issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Constitution of the State does not limit the amount of general
obligation bonds which may be issued by the State; however, no such bonds may be
issued unless approved by the voters of the State at a general election or a
special election held for that purpose. There is no constitutional limitation on
the aggregate principal amount of revenue bonds that may be issued by the State
and its agencies. All revenue bonds and notes are secured only by specific
revenue streams and neither the general revenues of the State nor its full faith
and credit are pledged to repayment.
Pursuant to the Revenue Stabilization Law, the General Assembly must enact
legislation to provide for an allotment process of funding appropriations in
order to comply with State law prohibiting deficit spending whereby spending is
limited to actual revenues received by the State. The Governor may restrict
spending to a level below the level of appropriations. Pursuant to the
Stabilization Act, the General Assembly establishes five levels of priority for
general revenue spending, levels "A," "B," "B-1," "C" and "C-1". Successive
levels of appropriations are funded only in the event sufficient revenues have
been generated to fully fund any prior level. Accordingly, appropriations made
to programs and agencies are only maximum authorizations to spend. Actual
expenditures are limited to the lesser of (i) moneys flowing into a program or
agency's fund maintained by the Treasurer or (ii) the maximum appropriation by
the General Assembly. Since State revenues are not collected throughout the year
in a pattern consistent with program and agency expenditures, a budget revolving
fund, which receives interest earnings from State fund investments, has been
established and is utilized to assure proper cash flow during any period.
One-half of all moneys deposited into the budget revolving fund ultimately are
utilized to supplement the State's capital construction program and the balance
is distributed to programs and agencies funded from general revenues.
The State operates under a biennial budgeting system with July 1, 1995
beginning the current biennium. The State ended fiscal 1994 in balance as
required by the Revenue Stabilization Act. Net available general revenue growth
for fiscal 1994 was 9%.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $74,103,217. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$280,071 (equivalent to 0.36% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $296,231 (equivalent to 0.37% of the Portfolio's average daily
net assets for such year). For the period from the Portfolio's start of
business, February 1, 1994, to the fiscal year ended August 31, 1994, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $172,691
(equivalent to 0.38% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $88,417. The Portfolio's
Investment Advisory Agreement with BMR is dated February 1, 1994 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996, and 1995, and
for the period from the start of business, February 9, 1994, to the fiscal year
ended August 31, 1994, $17,351, $15,164 and $13,217, respectively, of the Fund's
operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be continued
as described under "Service Plan" in Part I. Prior to February 1, 1996, the Fund
made sales commission, distribution fee and service fee payments pursuant to a
Distribution Plan. During the period from September 1, 1995 to January 31, 1996,
the Principal Underwriter paid to Authorized Firms sales commissions of $1,031
under that plan on sales of Fund shares. During the same period, the Fund paid
sales commission payments under that Plan to the Principal Underwriter
aggregating $1,657. During the fiscal year ended, August 31, 1996, and CDSCs
aggregating approximately $55 were imposed on early redeeming shareholders and
paid to the Principal Underwriter. The CDSCs and sales commissions paid to the
Principal Underwriter reduced Uncovered Distribution Charges. As at August 31,
1996, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Distribution Plan amounted to approximately
$53,000 (which amount was equivalent to 5.1% of the Fund's net assets on such
date). This charge will be extinguished at no expense to the Fund on January 31,
1997. During the fiscal year ended August 31, 1996, the Fund paid or accrued
service fees under the Plan aggregating $1,340, of which $1,089 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter. A portion of such fees was paid under the service fee provisions of
the Distribution Plan and the balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $18,061, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $5.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $20,283 on portfolio security transactions aggregating
$144,975,283 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995, and for the period from the start of business,
February 1, 1994, to the fiscal year ended August 31, 1994, the Portfolio paid
no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
Donald R. Dwight .......... $0 $1,129(2) $142,500(4)
Samuel L. Hayes, III ...... 0 1,308(3) 153,750(5)
Norton H. Reamer .......... 0 1,268 142,500
John L. Thorndike ......... 0 1,348 147,500
Jack L. Treynor ........... 0 1,274 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $424 of deferred compensation.
(3) Includes $446 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) is a Vice President
of the Portfolio. Mr. Browse has served as a Vice President of the Portfolio
since June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse is an
officer of various investment companies managed by Eaton Vance or BMR. Prior
to Joining Eaton Vance, Mr. Browse was a Municipal Bond Trader at Fidelity
Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from October 2, 1992 through
August 31, 1996 and for the one-year period ended August 31, 1996. The total
return for the period prior to the Fund's commencement of operations on February
9, 1994 reflects the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge. The total return for such
prior period has not been adjusted to reflect the change in the Fund's
distribution fees and/or service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 10/2/92* $962.50 $1,207.98 25.53% 5.97% 20.80% 4.94%
1 Year Ended
8/31/96 8/31/95 $962.50 $1,004.91 4.37% 4.37% 0.49% 0.49%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.94%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.94% would be 7.70%, assuming a
combined federal and State tax rate of 35.83%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 19.2% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date, the following shareholders owned beneficially and
of record the percentages of outstanding shares of the Fund indicated after
their names: Painewebber for the Benefit of Johnnie Lile Sullinger TTEE The
Johnnie Lile Sullinger Trust, dtd 8/7/92, Little Rock, AR (9.4%); Donald Lufkin
Jenrette, 14.4%; James L. Nalher and Peggy L. Walker JTWROS, Fayetteville, AR,
7.0%; Marvin D. Jones, N. Little Rock, AR, 6.4%; CNOM & CO, St. Louis, MO, 5.2%.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Arkansas Tax Free Fund to EV
Classic Arkansas Municipals Fund on January 1, 1996 and to EV Traditional
Arkansas Municipals Fund on February 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Arkansas State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND ARKANSAS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- AR STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 58,151 - $121,300 $ 96,901 - $147,700 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$121,301 - $263,750 $147,701 - $263,750 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $263,750 Over $263,750 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
**Net amount subject to federal and Arkansas personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Arkansas tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
brackets assume that Arkansas taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The assumed Arkansas State income tax rate is 7%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Arkansas State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Arkansas personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Arkansas personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL GEORGIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Georgia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Georgia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Georgia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Georgia issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Georgia issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The Georgia Constitution provides that the State may incur public debt of
two types for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred to acquire, construct,
develop, extend, enlarge or improve land, waters, property, highways,
buildings, structures, equipment or facilities of the State, its agencies,
departments, institutions and certain State authorities, to provide
educational facilities for county and independent school systems, to provide
public library facilities for county and independent school systems, counties,
municipalities, and boards of trustees of public libraries or boards of
trustees of public library systems, to make loans to counties, municipal
corporations, political subdivisions, local authorities and other local
government entities for water or sewerage facilities or systems, and to make
loans to local government entities for regional or multijurisdictional solid
waste recycling or solid waste facilities or systems. No general obligation
debt may be incurred, however, when the highest aggregate annual debt service
requirements for the then current year or any subsequent year for outstanding
general obligation debt and guaranteed revenue debt, including any proposed
debt, and the highest aggregate annual payments for the then current year or
any subsequent fiscal year of the State under certain State contracts, exceed
ten percent of the total revenue receipts, less refunds, of the State Treasury
in the fiscal year immediately preceding the year in which the debt is to be
incurred. In addition, no general obligation debt may be incurred with a term
in excess of twenty-five years.
Guaranteed revenue debt may be incurred by guaranteeing the payment of
certain revenue obligations issued by an instrumentality of the State. No
guaranteed revenue debt may be incurred to finance water or sewage treatment
facilities or systems when the highest aggregate annual debt service
requirements for the then current year or any subsequent fiscal year of the
State for outstanding or proposed guaranteed revenue debt for water or
sewerage facilities or systems exceed one percent of the total revenue
receipts, less refunds, of the State Treasury in the fiscal year immediately
preceding the year in which any debt is to be incurred. In addition, the
aggregate amounts of guaranteed revenue debt incurred to make loans for
educational purposes may not exceed $18 million, and the aggregate guaranteed
revenue debt incurred to purchase, or to lend or deposit against the security
of, loans for educational purposes that may be outstanding may not exceed $72
million.
As of May 31, 1996, the State's outstanding general obligation debt was
$4,670,545,000. The State had outstanding at July 31, 1996, $185,135,000 of
guaranteed revenue debt.
In addition to the State's general obligation debt and guaranteed revenue
debt, the State had outstanding at May 30, 1996, $395,000 in revenue bonds and
notes issued by various State agencies, authorities and institutions of higher
education.
In the 1996 Legislative Session, the General Assembly authorized the
issuance of $65,340,000 in aggregate principal amount of general obligation
bonds for fiscal year 1997, the proceeds of which are to be used for various
planned capital projects of the State, its departments and agencies.
The Georgia Constitution also permits the State to incur public debt to
supply a temporary deficit in the State Treasury in any fiscal year created by
a delay in collecting the taxes of that year. Such debt must not exceed, in
the aggregate, 5% of the total revenue receipts, less refunds, of the State
Treasury in the fiscal year immediately preceding the year in which such debt
is incurred. The debt incurred must be repaid on or before the last day of the
fiscal year in which it is to be incurred out of the taxes levied for that
fiscal year. No such debt may be incurred in any fiscal year if there is then
outstanding unpaid debt from any previous fiscal year which was incurred to
supply a temporary deficit in the State Treasury. No such debt has been
incurred under this provision since its inception.
Virtually all of the issues of long-term debt obligations issued by or on
behalf of the State of Georgia and counties, municipalities and other
political subdivisions and public authorities thereof are required by law to
be validated and confirmed in a judicial proceeding prior to issuance. The
legal effect of a validation in Georgia is to render incontestable the
validity of the pertinent bond issue and the security therefor.
Tax collections of the State for fiscal year 1995 were 9.0% over tax
collections for fiscal year 1994. Corporate and individual income tax receipts
and general sales tax receipts of the State for fiscal year 1995 comprised an
estimated 43.7% and 35.0%, respectively, of the total State tax revenues.
Revenues from sales and income taxes increased 8.0% and 9.0%, respectively,
during fiscal year 1995.
Three suits (two for refund and one for declaratory and injunctive relief)
have been filed with the State of Georgia by foreign producers of alcoholic
beverages. The first suit seeks $96 million in refunds of alcohol import taxes
imposed under Georgia's post-Bacchus (468 U.S. 263-1984) statute, O.C.G.A. (S)
3-4-60, et seq., as amended in 1985. These claims constitute 99% of all such
taxes paid during the three years preceding these claims. In addition, the
claimants have filed a second suit for refund of an additional $23 million for
apparently later time periods. These two cases encompass all known or
anticipated claims for refund of such type within the apparently statute of
limitations for the years in question (1989 - January 1993). The two refund
cases are still pending in the trial court. The declaration/injunctive relief
case was applicably dismissed by the Federal District Court and was affirmed
by the Eleventh Circuit Court of Appeals. The claimants have filed a petition
for rehearing which is pending.
A suit has also been filed based on a local school board's claim that the
State finance the major portion of the costs of its desegregation program. The
Savannah Board originally requested restitution in the amount of $30 million,
but the Federal District Court set forth a formula which would require a State
payment in the amount of approximately $8,900,000 computed through June 30,
1994. The plaintiffs, dissatisfied with the apportionment of desegregation
costs between State and county, and an adverse ruling on the State funding
formula for transportation costs, have appealed to the Eleventh Circuit Court
of Appeals. The State has filed a responsive cross-appeal on the ground that
there is no basis for any liability. Subsequently, the parties agreed to a
settlement, which has been approved by the Court. The settlement calls for the
State to pay the amount awarded to the plaintiffs and to offer an option
regarding future funding methodology for pupil transportation. Because
interest was accruing in the settlement, in March 1995, the State paid to the
plaintiffs $8,925,000 in partial satisfaction of the settlement agreement. The
final settlement figure has yet to be calculated, due to costs which accrued
during the pendency of the settlement proposal. Those cost calculations will
be finalized in the next several months but are not expected to exceed a total
of $10,000,000, including the money already paid.
A similar complaint has been filed by DeKalb County and seeking
approximately $67,500,000 in restitution. The Federal District Court ruled
that the State's funding formula for pupil transportation (which the District
Court in the Savannah case upheld) was contrary to State law. This ruling
would require a State payment of a State law funding entitlement in the amount
of approximately $34,000,000 computed through June 30, 1994. Motions to
reconsider and amend the Court's judgment were filed by both parties. The
State's motion was granted, in part, which reduced the required State payment
to approximately $28,000,000. Notices of appeal to the Eleventh Circuit Court
of Appeals have been filed. There are approximately five other school
districts which might file similar claims.
Another suit has been filed in federal district and State superior courts
challenging the constitutionality of Georgia's transfer fee (often referred to
as "impact fee") by asserting that the fee violates the commerce clause, due
process, equal protection and privilege and immunities provisions of the
constitution. The plaintiff seeks to prohibit the State from further
collections and to require the State to return to her and those similarly
situated all fees previously collected. A similar lawsuit previously filed in
another State superior court has been voluntarily dismissed and will likely be
joined with this action. From May of 1992 to June 1995, the State has
collected $24,168,203. All amounts collected after June 7, 1995 are being paid
into an escrow account. The State continues to collect approximately $500,000
to $600,000 per month.
On September 1, 1994, a civil action was filed in the Fulton County
Superior Court on behalf of all certain employees of the State of Georgia who
were subjected to a freeze in pay between 1992 and 1995. Should the plaintiffs
prevail in every aspect of their claims, the liability of the State in this
matter could be as much as $295,000,000, based on best estimates currently
available.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $108,974,295. For
the fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$473,056 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $521,159 (equivalent to 0.41% of the Portfolio's average
daily net assets for such year). For the eleven months ended August 31, 1994,
the Portfolio paid BMR advisory fees of $496,637 (equivalent to 0.40%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and may be continued as described under "Investment Adviser and Administrator"
in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995 and
for the period from the start of business, December 7, 1993, to the fiscal
year ended August 31, 1994, $18,157, $16,832 and $11,268, respectively, of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from September 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $6,092 on sales of Fund shares. During the same period,
the Fund paid sales commission payments under that Plan to the Principal
Underwriter aggregating $7,243. During the fiscal year ended August 31, 1996,
CDSCs aggregating approximately $55 were imposed on early redeeming
shareholders and paid to the Principal Underwriter. The CDSCs and sales
commissions paid to the Principal Underwriter reduced Uncovered Distribution
Charges. As at August 31, 1996, the outstanding Uncovered Distribution Charges
of the Principal Underwriter calculated under the Distribution Plan amounted
to approximately $419,000 (which amount was equivalent to 25.7% of the Fund's
net assets on such date). This charge will be extinguished at no expense to
the Fund on January 31, 1997. During the fiscal year ended August 31, 1996,
the Fund paid or accrued service fees under the Plan aggregating $3,996, of
which $3,335 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter. A portion of such fees was paid under
the service fee provisions of the Distribution Plan and the balance was paid
under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $3,793, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $125.00 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $17,018 on portfolio security transactions aggregating
$146,330,600 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended August 31, 1995 and for the eleven months ended August
31, 1994, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1996, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1996, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex
(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $0 $1,542(2) $142,500(4)
Samuel L. Hayes, III ...... 0 1,687(3) 153,750(5)
Norton H. Reamer .......... 0 1,645 142,500
John L. Thorndike ......... 0 1,729 147,500
Jack L. Treynor ........... 0 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Cynthia J. Clemson (33) is a Vice
President of the Portfolio. Ms. Clemson has served as a Vice President of the
Portfolio since January 1, 1996. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from December 23, 1991
through August 31, 1996. The total return for the period prior to the Fund's
commencement of operations on December 7, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. Such performance has not been adjusted to reflect the change in
the Fund's distribution fees and/or service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ----------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ----------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 12/23/91* $962.50 $1,207.07 25.46% 4.96% 20.71% 4.09%
1 Year Ended
8/31/96 8/31/95 $962.50 $1,014.53 5.43% 5.43% 1.45% 1.45%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
5.16%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 5.16% would be 7.96%,
assuming a combined federal and State tax rate of 35.14%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 46.0% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. As of the same date, the following shareholder
owned beneficially and of record, the percentage of outstanding shares of the
Fund indicated after their name: Steven Inc., FBO A/C 84324704, 9.4%. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Georgia Tax Free Fund to EV
Classic Georgia Municipals Fund on January 1, 1996 and to EV Traditional
Georgia Municipals Fund on February 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Georgia State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND GEORGIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ---------------------- GA STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $263,750 Over $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
</TABLE>
*Net amount subject to federal and Georgia personal income tax after
deductions and exemptions.
+The first tax bracket is calculated using the highest Georgia tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that Georgia taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and
39.6% over the same ranges of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Georgia State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $117,950 and joint
filers with adjusted gross income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Georgia personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Georgia personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL KENTUCKY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Kentucky state personal income taxes in the
form of an investment exempt from the Kentucky intangibles tax. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Kentucky Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Kentucky considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Kentucky issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Kentucky issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Because the Kentucky Constitution requires the vote of a majority of the
state's electorate to approve the issuance of state general obligation
indebtedness and until recently regained the vote of two-thirds of a
municipality's electorate to approve the issuance of general obligation
indebtedness by any city, county, or other municipality within the state, most
Kentucky state and local government indebtedness is issued not as general
obligation indebtedness but as either debt payable only from revenues produced
by the particular project or as indebtedness subject to biennial, in the case of
the state, or annual, in the case of a local government, legislative
appropriation for the payment of debt service. Such appropriation-backed
indebtedness is customarily issued in the form of lease revenue bonds by a
public authority or public holding company which uses the proceeds of the bonds
to finance the particular public project and leases the project to the state or
local government pursuant to a lease renewable each fiscal biennium (in the case
of the state) or each fiscal year (in the case of a local government). Failure
of the lessee government to renew the lease would terminate the lessee's
obligation to make further rental payments and would leave the bondholders with
recourse only against the property which was subject to the lease and any other
security pledged for the payment of the bonds. An amendment to the state
constitution approved by the electorate at the November 1994 general election
authorized the Kentucky General Assembly to enact legislation permitting local
governments to issue general obligation indebtedness without voter approval but
subject to prescribed limitations on the maximum amount of indebtedness that may
be incurred based on the assessed value of the taxable property within the
municipality and such additional limitations and conditions as may be prescribed
by statute. Although the Kentucky General Assembly enacted enabling legislation
in 1996, the validity of the constitutional amendment is currently the subject
of a test case. Therefore, appropriation-backed indebtedness continues to be the
prevailing form of financing for local governments in Kentucky.
The Commonwealth of Kentucky recently retired the last of its outstanding
general obligation debt. In September 1994 S&P upgraded the rating of the
State's appropriation-back debt from A to A+. Moody's and Fitch rate the State's
appropriation-back debt as A and A+, respectively.
Kentucky is an "average" state in terms of size and in terms of its
proportion of the national economy. Kentucky has 1.5% of total U.S. population,
1.2% of total U.S. personal income, and 1.3% of total U.S. nonagricultural
employment. The Kentucky economy has shown almost uninterrupted growth for the
past decade. During 1995, the unemployment rate in Kentucky averaged 5.4%
compared to the national average of 5.6%; Kentucky nonagricultural employment
grew by 2.8% compared to the national average of 2.3%; manufacturing employment
in Kentucky increased by 2.8% compared to 0.5% nationally; and personal income
in Kentucky grew 5.8% compared to 6.0% nationally.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last four years. State General Fund Revenue grew by 3.5% in fiscal
year 1996 to a total of $5.34 billion. To avoid the need for state budget cuts
in the event revenues do not meet expectations, a Budget Reserve Trust Fund was
established with a $90 million deposit in fiscal year 1994 and has been
increased by additional deposits of $10 million in fiscal year 1995 and $100
million in fiscal year 1996 to a current balance of $200 million.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $133,017,453. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$577,479 (equivalent to 0.41% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $595,483 (equivalent to 0.42% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $510,287 (equivalent to 0.41% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995 and
for the period from the start of business, December 7, 1993, to the fiscal year
ended August 31, 1994, $18,538, $27,092 and $9,744, respectively, of the Fund's
operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be continued
as described under "Service Plan" in Part I. Prior to February 1, 1996, the Fund
made sales commission, distribution fee and service fee payments pursuant to a
Distribution Plan. During the period from September 1, 1995 to January 31, 1996,
the Principal Underwriter paid to Authorized Firms sales commissions of $4,762
under that Plan on sales of Fund shares. During the same period, the Fund paid
sales commission payments under that Plan to the Principal Underwriter
aggregating $5,706. During the fiscal year ended August 31, 1996, CDSCs
aggregating approximately $155 were imposed on early redeeming shareholders and
paid to the Principal Underwriter. The CDSCs and sales commissions paid to the
Principal Underwriter reduced Uncovered Distribution Charges. As at August 31,
1996, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Distribution Plan amounted to approximately
$319,000 (which amount was equivalent to 25.3% of the Fund's net assets on such
date). This charge will be extinguished at no expense to the Fund on January 31,
1997. During the fiscal year ended August 31, 1996, the Fund paid or accrued
service fees under the Plan aggregating $3,070, of which $2,576 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter. A portion of such fees was paid under the service fee provisions of
the Distribution Plan and the balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $3,990, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $85.00 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $43,344 on portfolio security transactions aggregating
$237,637,801 to firms which provided some research services to BMR or its
afiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $0 $1,542(2) $142,500(4)
Samuel L. Hayes, III ...... 0 1,687(3) 153,750(5)
Norton H. Reamer .......... 0 1,645 142,500
John L. Thorndike ......... 0 1,729 147,500
Jack L. Treynor ........... 0 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (35) is a Vice President of
the Portfolio. Ms. Anderes has served as a Vice President of the Portfolio since
December 1, 1995. She joined BMR and Eaton Vance as a Vice President in January
1994. Ms. Anderes is an officer of various investment companies managed by Eaton
Vance or BMR. 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 (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from December 23, 1991 through
August 31, 1996. The total return for the period prior to the Fund's
commencement of operations on December 7, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. Such performance has not been adjusted to reflect the change in
the Fund's distribution fees and/or service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT AMOUNT OF INVESTMENT -------------------------- --------------------------
INVESTMENT PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------------- ------------ --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 12/23/91** $962.50 $1,225.98 27.34% 5.29% 22.60% 4.44%
1 Year Ended 8/31/96 8/31/95 $962.50 $1,010.08 4.91% 4.91% 1.01% 1.01%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1996, the yield of the Fund was
5.31%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.31% would be 8.19%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackes.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 50.0% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition as of the same date, the following shareholders owned of record, the
percentages of outstanding shares indicated after their names: Mary R.
Stepherson, Battletown, KY, 9.51%; NFSC FBO, Kathleen C. Parsons, 7.5%. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Kentucky Tax Free Fund to EV Classic Kentucky Municipals
Fund on January 1, 1996 and to EV Traditional Kentucky Municipals Fund on
February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Kentucky State income tax laws, and intangibles tax laws and tax rates
applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND KENTUCKY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ---------------------- KY STATE -----------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $263,750 Over $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<CAPTION>
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ---------------------- ---------------------------------------------------------------------
(TAXABLE INCOME*) TAXABLE EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX**:
- ------------------------------------------------- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 5.36% 5.99% 6.61% 7.23% 7.86% 8.48% 9.11%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 6.33 7.07 7.80 8.54 9.28 10.01 10.75
$ 58,151 - $121,300 $ 96,901 - $147,700 6.61 7.37 8.14 8.91 9.68 10.45 11.22
$121,301 - $263,750 $147,701 - $263,750 7.12 7.95 8.78 9.61 10.44 11.27 12.10
Over $263,750 Over $263,750 7.55 8.42 9.30 10.18 11.06 11.94 12.82
* Net amount subject to federal and Kentucky personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Kentucky tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax rates
assume that Kentucky taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same
ranges of income. The Kentucky State income tax rate is 6%.
Note: The federal income tax portion of above-indicated combined income tax brackets does not take into account the effect of a
reduction in the deductibility of itemized deductions (including Kentucky state income taxes) for taxpayers with adjusted gross
income in excess of $117,950. The tax brackets also do not show the effects of phaseout of personal exemptions for single filers
with adjusted gross income in excess of $117,950 and joint filers with Adjusted Gross Income in excess of $176,950. The effective
tax brackets and equivalent taxable yields of such taxpayers will be higher than those indicated above.
** The Kentucky intangibles tax on stocks, bonds, notes and other evidences of debt is 25 cents on every $100 of the value
thereof. An example of the effect of the Kentucky intangibles tax on the combined tax brackets of taxpayers is as follows: A
$10,000 investment subject to the tax would require payment of $25 annually in intangibles taxes. If the investment yielded
5.5% annually or $550, the intangibles tax as a percentage of income would be $25/$550 or 4.55%. If a taxpayer owning such an
investment were in the 6% state income tax bracket, he or she would be paying combined state taxes as a percentage of income
of 6% plus 4.55% or 10.55%. Assuming the deductibility of these taxes as itemized deductions and that such taxpayer were in
the 36% federal income tax bracket, the taxpayer would then be in a 42.75% [36% + (1 - .36) X 10.55%] combined tax bracket
with respect to such investment. This is higher than the 39.84% combined tax bracket without taking into account the
intangibles tax.
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Kentucky personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Kentucky personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL LOUISIANA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Louisiana State individual and corporate
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Louisiana Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Louisiana considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Louisiana issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Louisiana issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The State of Louisiana General Fund should have a $76.8 million balance
after Fiscal Year 1995-96. However, Fiscal Year 1996-97 budget projections
indicate that the State will have to rely on reduction in expenditures by
approximately $72.5 million to produce a balanced budget. One of the most severe
budget issues is the Medicaid program. For Fiscal Year 1995-96, Louisiana was
eligible to receive $690 million in Medicaid disproportionate share payments for
hospitals. In the past, Louisiana used a portion of the amounts paid to the
State public hospitals to fund the State's portion of the Medicaid program. The
1993 amendments to the federal disproportionate share law severely restrict the
State's ability to continue to help finance health care in this manner. On April
26, 1996, Congress adopted a budget bill that included a two-year funding based
specifically for the State Medicaid Program. This budget bill allows the State
to move forward with the Medicaid Managed Care initiatives without being faced
with severe funding cuts. It is expected, however, that additional program
reductions will be required in order to bear a $2.6 billion Federal fund cap and
the minimum required State match of $600 million for Fiscal Year 1996-97 as
allowed by Congress. The State's executive and legislative leadership is
currently revising its overall spending projections for years through Fiscal
Year 1999-2000, including projections for Medicaid requirements. This Medicaid
problem will also slow the growth in the services sector of the Louisiana
economy.
The Louisiana Economic Development and Gaming Corporation (the "Gaming
Corporation") was created by the Louisiana legislature in 1992 for the purpose
of contracting with a casino operator to provide for or furnish an official
gaming establishment and to conduct casino gaming operations at the official
gaming establishment, the Rivergate Convention Center in New Orleans (the
"casino") as well as a temporary casino until the casino is opened. Voters at
the general election held in November, 1996, approved land-based gambling in the
City of New Orleans. Once the casino is in operation, the operator must pay a
minimum of 18 1/2% of gross revenues, or $100 million annually, whichever is
higher, to the Gaming Corporation. The Gaming Corporation must transfer daily to
the State Treasury for deposit in the Casino Gaming Proceeds Fund net revenues
which are surplus to its needs. Such revenues will be first credited to the Bond
Security and Redemption Fund before being credited to the Casino Gaming Proceeds
Fund. Moneys in the Casino Gaming Proceeds Fund may be allotted or expended only
pursuant to legislative appropriation. The operating contract was awarded to
Harrah's Jazz Company, which is a partnership comprised of three principals:
Harrah's New Orleans; New Orleans/Louisiana Development Corporation (Jazzville);
and Grand Palais Corporation. Construction of the permanent casino began at the
site of the old Rivergate in the spring of 1995. In November, 1995, after
unsuccessfully operating a temporary casino at the New Orleans Municipal
Auditorium, Harrah's New Orleans filed voluntary bankruptcy under Chapter 11.
Harrah's New Orleans is in the process of restructuring Harrah's Jazz Company
financing and renegotiating other contractual terms. The temporary casino will
not re-open. It appears at this time that a scaled-down version of the casino
will be opened in the latter part of 1997, but the Governor of the State has
publicly stated that he will not comprise any payments that are due the State
under the enabling legislation and the original contract. At this time, the
situation has not been resolved. The State has not included any revenue from
land based casino gaming in the official revenue forecast for Fiscal Year
1996-97.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $35,048,671. For the
fiscal year ended August 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $81,468 (equivalent to 0.23% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $40,000.
For the fiscal year ended August 31, 1995, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $73,471 (equivalent to 0.23% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$36,188. For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $34,790 (equivalent to 0.21%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $31,760. The Portfolio's Investment Advisory Agreement with
BMR is dated February 1, 1994 and may be continued as described under
"Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995, and
for the period from the start of business, February 14, 1994, to the fiscal year
ended August 31, 1994, $17,915, $10,912 and $12,236, respectively, of the Fund's
operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be continued
as described under "Service Plan" in Part I. Prior to February 1, 1996, the Fund
made sales commission, distribution fee and service fee payments pursuant to a
Distribution Plan. During the period from September 1, 1995 to January 31, 1996,
the Principal Underwriter paid to Authorized Firms sales commissions of $6,657
under that Plan on sales of Fund shares. During the same period, the Fund paid
sales commission payments under that Plan to the Principal Underwriter
aggregating $7,826. During the fiscal year ended August 31, 1996, CDSCs
aggregating aproximately $250 were imposed on early redeeming shareholders and
paid to the Principal Underwriter. The CDSCs and sales commissions paid to the
Principal Underwriter reduced Uncovered Distribution Charges. As at August 31,
1996, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Distribution Plan amounted to approximately
$261,000 (which amount was equivalent to 13.2% of the Fund's net assets on such
date). This charge will be extinguished at no expense to the Fund on January 31,
1997. During the fiscal year ended August 31, 1996, the Fund paid service fee
payments under the Plan aggregating $4,354, of which $3,725 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter. A portion of such fees was paid under the service fee provisions of
the Distribution Plan and the balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $5,159, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $62.50 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $7,029 on portfolio security transactions aggregating $59,248,516
to firms which provided some research services to BMR or its affiliates
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the period from the start of business,
February 1, 1994, to the fiscal year ended August 31, 1994, the Portfolio paid
no brokerage commissions on portfolio transactions.
The Portfolio's turnover rates for the fiscal years ended August 31, 1995
and 1996 were 46% and 99%, respectively. The difference in the portfolio
turnover rate for the past two fiscal years is primarily the result of a change
in the Portfolio's portfolio manager in January, 1996. The new manager bought
and sold securities during 1996 to take advantage of opportunities to improve
the Portfolio's credit quality and to better position the Portfolio for a
declining interest rate environment.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight ..................................................... $0 $343(2) $142,500(4)
Samuel L. Hayes, III ................................................. 0 316(3) 153,750(5)
Norton H. Reamer ..................................................... 0 314 142,500
John L. Thorndike .................................................... 0 318 147,500
Jack L. Treynor ...................................................... 0 341 147,500
</TABLE>
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $129 of deferred compensation.
(3) Includes $104 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from October 2, 1992 through
August 31, 1996 and for the one-year period ended August 31, 1996. The total
return for the period prior to the Fund's commencement of operations on February
14, 1994 reflects the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge. The total return for such
prior period has not been adjusted to reflect the change in the Fund's
distribution fees and/or service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ----------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ------ ------- ------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 10/02/92* $962.50 $1,230.23 27.78% 6.45% 23.02% 5.43%
1 Year Ended 8/31/96 8/31/95 $962.50 $1,013.70 5.34% 5.34% 1.37% 1.37%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ------------
*Initial investment less the maximum sales charge of 3.75%.
**If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1996, the yield of the Fund was
6.10%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 6.10% would be 9.40%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Portfolio's
and the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 27.3% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of the same date, the following shareholders owned of record the
percentages of outstanding shares indicated after their names: Rozelle Hahn MD,
Baton, LA (9.0%); PaineWebber for the benefit of Brigette and Charles Belair
tennants in common, Belle Chasse, LA 70037-2630 (7.0%); PaineWebber for the
benefit of William E. Wynne, New Orleans, LA 70124-2643 (6.4%); Sidney S.
Moreland IV, Baton Rouge, LA, (5.9%); and Jaunita C. Sendker, Belle Chasse, LA
(5.7%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Louisiana Tax Free Fund to EV
Classic Louisiana Municipals Fund on January 1, 1996 and to EV Traditional
Louisiana Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Louisiana State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND LOUISIANA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ---------------------- LA STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
Over - $263,750 Over - $263,750 43.22 7.05% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
* Net amount subject to federal and Louisiana personal income tax after deductions and exemptions.
+ Tax brackets are calculated using the highest Louisiana tax rate within the brackets. Taxpayers with taxable income within
these brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax brackets
assume that Louisiana taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions
on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those
indicated above. The applicable federal tax rates within each of these combined brackets are 15%, 28%, 31% and 39.6%
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Louisiana State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Louisiana personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Louisiana personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MARYLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Maryland State and local income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Maryland Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Maryland considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Maryland issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Maryland issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Generally Maryland has been among the most heavily indebted of the states,
although its position is more moderate with the inclusion of local debt,
reflecting in part the State assumption several years ago of a substantial
portion of local school construction costs. The State became concerned over its
debt levels and, following recommendations of a debt affordability committee,
has practiced restraint in borrowing. Resources have also expanded and debt
ratios have fallen. Capital borrowing plans are reasonable and designed not to
increase debt levels. Recently, major infrastructure projects undertaken,
including a light rail line, a stadium, and airport and convention center
improvements, have been financed primarily by revenue-backed or other
non-general obligation financings.
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State, as well as the various counties and
municipalities of the State, issues general obligation bonds payable from ad
valorem taxes for capital improvements. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities, as well as several local
governments, issue obligations payable solely from identified taxes or revenue
streams, including loan obligations from nonprofits, companies or other private
entities, and for which the State or local government has no liability and has
given no moral obligation assurance. The State, its agencies and departments and
the various localities also enter into municipal leases or installment purchase
obligations. Such a lease is not a general obligation of the municipality for
which the municipality's taxing power is pledged but is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments due
under the lease. Such municipal leases generally contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis.
During fiscal year 1991 through 1993, the State experienced budgetary
problems caused by a national recession. To address revenue shortfalls and
expanded expenditure requirements the State increased tax and other revenues,
curtailed various programs and transferred funds from various reserve accounts.
The State ended its fiscal year 1994 with a General Fund surplus on a budgetary
basis of approximately $60.0 million, and ended its fiscal year 1995 with a
General Fund surplus on a budgetary basis of approximately $26.5 million
(excluding $106 million to be applied to the fiscal year 1996 budget) and $286.1
million in the Revenue Stabilization Account of the State Reserve Fund. When the
fiscal year 1996 budget was enacted, it was anticipated that the year-end
General Fund surplus on a budgetary basis would be approximately $7.8 million
and that there would be $370.9 million in the State's Revenue Stabilization
Account. The State currently projects the year-end General Fund surplus on a
budgetary basis to be approximately $34.3 million and the balance in the Revenue
Stabilization Account to be approximately $51.8 million. Fiscal year 1995
revenues for the General Fund were $7.09 billion; fiscal 1996 revenues for the
General Fund are anticipated to be $7.43 billion.
<PAGE>
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $110,588,345. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$454,842 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $459,907 (equivalent to 0.40% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $390,773 (equivalent to 0.39% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995 and
for the period from the start of business, December 10, 1993, to the fiscal year
ended August 31, 1994, $15,391, $19,261 and $18,532, respectively, of the Fund's
operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be continued
as described under "Service Plan" in Part I. Prior to February 1, 1996, the Fund
made sales commission, distribution fee and service fee payments pursuant to a
Distribution Plan. During the period from September 1, 1995 to January 31, 1996,
the Principal Underwriter paid to Authorized Firms sales commissions of $2,169
on sales of Fund shares. During the same period, the Fund paid sales commission
payments under that Plan to the Principal Underwriter aggregating $3,039. During
the fiscal year ended August 31, 1996, CDSCs aggregating approximately $980 were
imposed on early redeeming shareholders and paid to the Principal Underwriter.
The CDSCs and sales commissions paid to the Principal Underwriter reduced
Uncovered Distribution Charges. As at August 31, 1996, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $100,000 (which amount was
equivalent to 10.2% of the Fund's net assets on such date). This charge will be
extinguished at no expense to the Fund on January 31, 1997. During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $1,881, of which $1,483 was paid to Authorized Firms and the balance
of which was retained by the Principal Underwriter. A portion of such fees was
paid under the service fee provisions of the Distribution Plan and the balance
was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $4,944, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $30.00 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $15,543 on portfolio security transactions aggregating
$136,017,108 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995 and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
<PAGE>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
-----------
Donald R. Dwight ......... $0 $1,542(2) $142,000(4)
Samuel L. Hayes, III ..... 0 1,687(3) 153,750(5)
Noton H. Reamer .......... 0 1,645 142,500
John L. Thorndike ........ 0 1,729 147,500
Jack L. Treynor .......... 0 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (37) is a Vice President of the Portfolio. Mr.
Browse has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Browse has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1992. Mr. Browse is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Mr. Browse was a Municipal Bond Trader at Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from February 3, 1992 through
August 31, 1996 and for the one year period ended August 31, 1996. The total
return for the period prior to the Fund's commencement of operations on December
10, 1993 reflects the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge. The total return for such
prior period has not been adjusted to reflect the change in the Fund's
distribution fees and/or service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 2/3/92* $962.50 $1,262.24 31.14% 6.10% 26.22% 5.22%
1 Year Ended 8/31/96 8/31/95 $962.50 $1,016.89 5.70% 5.70% 1.69% 1.69%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ------------
*Initial investment less the maximum sales charge of 3.75%.
**If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.98%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.98% would be 7.84%, assuming a
combined federal and State tax rate of 36.52%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
<PAGE>
TAXES
The Fund will not be subject to Maryland corporate income tax, provided
that, if there exists sufficient nexus between the State of Maryland and the
Fund to enable Maryland to tax the Fund, then the Fund will not be subject to
the corporate income tax for a taxable year if the Fund distributes to
shareholders all of its net investment income for such year.
The Fund will not be subject to Maryland financial institution franchise
taxes.
Obligations held by the Fund will not be subject to Maryland personal
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, the following shareholders owned beneficially and of record,
the percentages of shares of the Fund indicated after their names: Calvert R.
Bregel, Glen Arm, MD (18.0%); Cecile B. Taubman, Baltimore, MD (10.4%). To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Maryland Tax Free Fund to EV
Classic Maryland Municipals Fund on January 1, 1996 and to EV Traditional
Maryland Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Maryland State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND MARYLAND STATE AND LOCAL
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MD STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- AND LOCAL --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57
$ 58,151 - $121,300 $ 96,901 - $147,700 36.52 6.30 7.09 7.88 8.66 9.45 10.24 11.03
$121,301 - $263,750 $147,701 - $263,750 41.12 6.79 7.64 8.49 9.34 10.19 11.04 11.89
Over $263,750 Over $263,750 44.43 7.20 8.10 9.00 9.90 10.80 11.70 12.60
* Net amount subject to federal and Maryland State and local personal income taxes after deductions and exemptions.
+ Tax brackets are calculated using the highest Maryland State and local tax rate within the brackets. Taxpayers with taxable
income within these brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The
illustration assumes the taxpayer is subject to a local income tax which is 60% of the State rate. The combined tax brackets
assume that Maryland State and local income taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36%
and 39.6% over the same ranges of income.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Maryland State and local income
taxes) for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint filers
with adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Maryland State and local personal income taxes,
other income received by the Portfolio and allocated to the Fund may be taxable.
The table does not take into account state or local taxes, if any, payable on
Fund distributions except for Maryland State personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax,
is treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MISSOURI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Missouri State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Missouri Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Missouri considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Missouri issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Missouri issuers. Neither the Trust nor the Portfolio has independently verified
this information.
While Missouri has a diverse economy with a distribution of earnings and
employment among manufacturing, trade and service sectors closely approximating
the average national distribution, the national economic recession of the early
1980's had a disproportionately adverse impact on the economy of Missouri.
However, since the 1980 to 1983 recession periods, Missouri unemployment levels
generally approximated or slightly exceeded the national average. The St. Louis
and Kansas City metropolitan areas are important contributors to the Missouri
economy. Economic reversals in either of these two areas would have a major
impact on the overall economic condition of the State of Missouri. Additionally,
the State of Missouri has a significant agricultural sector which is
experiencing farm-related problems comparable to those which are occurring in
other states. To the extent that these problems were to intensify, there could
possibly be an adverse impact on the overall economic condition of the State.
Defense related business plays an important role in Missouri's economy. In
addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related businesses
in Missouri are the recipients of substantial annual dollar volumes of defense
contract awards. McDonnell Douglas Corporation, the State's largest employer,
received the second largest dollar amount of defense contracts in the United
States in 1995. There can be no assurances there will not be further changes in
the levels of military appropriations, and, to the extent that further changes
in military appropriations are enacted by the United States Congress, Missouri
could be disproportionately affected.
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty: litigation
continues on many issues, court orders are unpredictable, and school district
spending patterns have proven difficult to predict. A recent Supreme Court
decision favorable to the State may decrease the level of State funding required
in the future, but the impact of this decision is uncertain. The State paid $282
million for desegregation costs in fiscal 1994 and the budget for fiscal 1995
provided $315 million. This expense accounts for close to 17% of total state
General Revenue Fund spending.
Article X, Sections 16-24 of the Constitution of Missouri (the "Hancock
Amendment") imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well as
on the amount of local taxes, licenses and fees (including taxes, licenses and
fees used to meet debt service commitments on debt obligations) which may be
imposed by local governmental units (such as cities, counties, school districts,
fire protection districts and other similar bodies) in the State of Missouri in
any fiscal year.
The limit on taxes is tied to total State revenues determined in accordance
with the formula set forth in the amendment, which adjusts the limit based on
increases in the average personal income of Missouri for certain designated
periods. The details of the amendment are complex and clarification from
subsequent legislation and further judicial decisions may be necessary.
Generally, if the total State revenues exceed the State revenue limit imposed by
Section 18 of Article X by more than 1%, the State is required to refund the
excess. The State revenue limitation imposed by the Hancock Amendment does not
apply to taxes imposed for the payment of principal and interest on bonds,
approved by the voters and authorized by the Missouri Constitution. The revenue
limit can also be exceeded by a constitutional amendment authorizing new or
increased taxes or revenues adopted by the voters of the State of Missouri. The
Hancock Amendment also limits new taxes, licenses and fees and increases in
taxes, licenses and fees by local governmental units in Missouri. It prohibits
counties and other political subdivisions (essentially all local governmental
units) from levying new taxes, licenses and fees or increasing the current levy
of an existing tax, license or fee "without the approval of the required
majority of the qualified voters of that county or other political subdivision
voting thereon."
When a local governmental unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced "to yield the same estimated gross revenue as on the prior base." It
also effectively limits any percentage increase in property tax revenues to the
percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $85,162,363. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$339,243 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $353,176 (equivalent to 0.38% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $296,556 (equivalent to 0.37% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996, and 1995, and
for the period from the start of business, December 7, 1993, to the fiscal year
ended August 31, 1994, $19,192, $20,693 and $11,502, respectively, of the Fund's
operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be continued
as described under "Service Plan" in Part I. Prior to February 1, 1996, the Fund
made sales commission, distribution fee and service fee payments pursuant to a
Distribution Plan. During the period from September 1, 1995 to January 31, 1996,
the Principal Underwriter paid to Authorized Firms sales commissions of $7,041
under that Plan on sales of Fund shares. During the same period, the Fund paid
sales commission payments under that Plan to the Principal Underwriter
aggregating $9,879. During the fiscal year ended August 31, 1996, CDSCs
aggregating approximately $2,070 were imposed on early redeeming shareholders
and paid to the Principal Underwriter. The CDSCs and sales commissions paid to
the Principal Underwriter reduced Uncovered Distribution Charges. As at August
31, 1996, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Distribution Plan amounted to approximately
$346,000 (which amount was equivalent to 14.4% of the Fund's net assets on such
date). This charge will be extinguished at no expense to the Fund on January 31,
1997. During the fiscal year ended August 31, 1996, the Fund paid or accrued
service fees under the Plan aggregating $6,028, of which $4,939 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter. A portion of such fees was paid under the service fee provisions of
the Distribution Plan and the balance was paid under the ensuing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $1,278, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $127.50 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $15,858 on portfolio security transactions aggregating
$136,017,108 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended August 31, 1995, and for the eleven months ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1996, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
Donald R. Dwight .......... $0 $1,129(2) $142,500(4)
Samuel L. Hayes, III ...... 0 1,308(3) 153,750(5)
Norton H. Reamer .......... 0 1,268 142,500
John L. Thorndike ......... 0 1,348 147,500
Jack L. Treynor ........... 0 1,274 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $424 of deferred compensation.
(3) Includes $446 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
Cynthia J. Clemson (33) is a Vice President of the Portfolio. Ms. Clemson has
served as a Vice President of the Portfolio since June 19, 1995. Ms. Clemson has
been a Vice President of BMR and Eaton Vance since 1993 and an employee of Eaton
Vance since 1985. Ms. Clemson is an officer of various investment companies
managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from May 1, 1992 through August
31, 1996 and for the one year period ended August 31, 1996. The total return for
the period prior to the Fund's commencement of operations on December 7, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. The total return for such prior period
has not been adjusted to reflect the change in the Fund's distribution fees
and/or service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 5/1/92* $962.50 $1,272.89 32.25% 6.65% 27.29% 5.72%
1 Year Ended
8/31/96 8/31/95 $962.50 $1,012.48 5.20% 5.20% 1.25% 1.25%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.83%. The yield required of a taxable security that would produce an after- tax
yield equivalent to that earned by the Fund of 4.83% would be 7.14%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had a lower distribution rate and effective
distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 20.8% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date, the following shareholder owned beneficially and
of record the 6.5 percentage of the outstanding shares of the Fund indicated
after their name: Ted Drewes, Inc., Towne Country, MO (6.5%). To the knowledge
of the Trust, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Missouri Tax Free Fund to EV
Classic Missouri Municipals Fund on January 1, 1996 and to EV Traditional
Missouri Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Missouri State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND MISSOURI STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ---------------------- MO STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $263,750 Over $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
</TABLE>
*Net amount subject to federal and Missouri personal income tax after
deductions and exemptions.
+The first tax bracket is calculated using the highest Missouri tax rate
within the bracket. Taxpayers with taxable income within this bracket may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax brackets assume that Missouri taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. The
applicable federal tax rates within the brackets set forth above are 15%,
28%, 31%, 36% and 39.6% over the same ranges of income. The assumed Missouri
State income tax rate is 6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Missouri State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint
filers with adjusted gross income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Missouri personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Missouri personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL NORTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and North Carolina State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the North Carolina Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain North Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in North Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of North Carolina issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The current economic profile of the State consists of a combination of
industry, agriculture and tourism. Tobacco production, which had been the
leading source of agricultural income in the State, declined in 1995. Tobacco
farming in the State has been and is expected to continue to be affected by
major Federal legislation and regulatory measures regarding tobacco production
and marketing and by international competition.
The State's seasonally adjusted unemployment rate in August, 1996 was
estimated to be 4.1% of the labor force, as compared with and unemployment of
5.1% nationwide. The labor force has undergone significant change during recent
years as the State has moved from an agricultural to a service and goods
producing economy. Those persons displaced by farm mechanization and farm
consolidations have, in large measure, sought and found employment in other
pursuits.
During fiscal 1991 and 1992, the State was forced to employ various non-
recurring items and budget reductions in order to balance the State's budget.
Among other things, the State deferred Basic Education Program improvements. In
addition, the State also implemented approximately $640 million in tax
increases, including raising the State sales tax from 3% to 4%. This 4% tax is
the State's portion of the total 6% sales tax with the rest dedicated to local
governments. A 4% corporate income tax surcharge was also implemented and is
scheduled to terminate on January 1, 1995. The State's fiscal position has
improved considerably since 1992, with the general fund balance increasing from
a deficit position to a surplus equal to 11% of 1994 expenditures.
The State is a defendent in pending court actions involving the taxing of
benefits paid to federal retirees and related matters. Although specific claims
for damages have not been precisely calculated, the amount could exceed $400
million over a period of years. The State is also a defendent in several other
litigations which, in the opinion of the Department of the Treasurer, could have
a material adverse affect on the State's ability to meet its obligations. In the
Leandro action, the plaintiffs claim that the State has failed to provide
adequate or substantially equal educational opportunities to children. In the
Francisco action, the plaintiffs claim that the State has failed to fund
programs to educate non-English speaking students. In a series of cases
involving State retirement benefits, disabled retirees are challenging on
various grounds changes in the formula for paying retirement benefits. Damages
could exceed $100 million. In the Fulton case, the imposition of the State's
intangible personal property tax on shares of stock has been challenged.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $187,044,385. For the
fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$832,564 (equivalent to 0.43% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $851,448 (equivalent to 0.44% of the Portfolio's average daily
net assets for such year). For the eleven months ended August 31, 1994, the
Portfolio paid BMR advisory fees of $744,143 (equivalent to 0.42% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995, and
for the period from the start of business, December 7, 1993, to the fiscal
year ended August 31, 1994, $17,019, $17,410 and $14,638, respectively, of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from September 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $7,201 under that Plan on sales of Fund shares. During
the same period, the Fund paid sales commission payments under that Plan to
the Principal Underwriter aggregating $19,780. During the fiscal year ended,
August 31, 1996, CDSCs aggregating approximately $55 were imposed on early
redeeming shareholders and paid to the Principal Underwriter. The CDSCs and
sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at August 31, 1996, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under
the Distribution Plan amounted to approximately $761,000 (which amount was
equivalent to 4.6% of the Fund's net assets on such date). This charge will be
extinguished at no expense to the Fund on January 31, 1997. During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the Plan
aggregating $16,144, of which $10,794 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter. A portion of such
fees was paid under the service fee provisions of the Distribution Plan and the
balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $4,853, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $110.00 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $26,538 on portfolio security transactions aggregating
$211,176,598 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended August 31, 1995 and for the eleven months ended August
31, 1994, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1996, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1996, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex
(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
<S> <C> <C> <C>
Donald R. Dwight ..................................................... $34 $2,091(2) $142,500(4)
Samuel L. Hayes, III ................................................. 32 2,192(3) 153,750(5)
Norton H. Reamer ..................................................... 31 2,147 142,500
John L. Thorndike .................................................... 32 2,238 147,500
Jack L. Treynor ...................................................... 34 2,228 147,500
</TABLE>
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $784 of deferred compensation.
(3) Includes $737 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from October 23, 1991
through August 31, 1996 and for the one-year period ended August 31, 1996. The
total return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the change in
the Fund's distribution fees and/or service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ----------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ------ ---------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 10/23/91* $962.50 $1,250.87 29.92% 5.53% 25.09% 4.71%
1 Year Ended
8/31/96 8/31/95 $962.50 $1,012.16 5.15% 5.15% 1.22% 1.22%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ------------
*Initial investment less the maximum sales charge of 3.75%.
**If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.91%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.91% would be 7.71%,
assuming a combined federal and State tax rate of 36.35%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of November 30, 1996, the following shareholders owned beneficially
and of record the percentage of outstanding shares of the Fund indicated after
their names: Irwin Belk, Charlotte, NC (66.0%); Healthsource North Carolina
Inc., Morrisville, NC (11.41%). To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic North Carolina Tax Free Fund to
EV Classic North Carolina Municipals Fund on January 1, 1996 and to EV
Traditional North Carolina Municipals Fund on February 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and the North Carolina State income tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND NORTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ---------------------- NC STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 58,151 - $121,300 $ 96,901 - $147,700 36.35 6.28 7.07 7.86 8.64 9.43 10.21 11.00
$121,301 - $263,750 $147,701 - $263,750 40.96 6.78 7.62 8.47 9.32 10.16 11.01 11.86
Over $263,750 Over $263,750 44.28 7.18 8.08 8.97 9.87 10.77 11.67 12.56
</TABLE>
*Net amount subject to federal and North Carolina personal income tax after
deductions and exemptions.
+Tax brackets are calculated using the highest North Carolina tax rate within
each bracket. Taxpayers with taxable income within these brackets may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that North Carolina taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. The
applicable federal tax rates within each of these combined brackets are 15%,
28%, 31% and 39.6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including North Carolina State income
taxes) for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint
filers with adjusted gross income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Fund will invest
principally in obligations, the interest from which is exempt from the regular
federal income tax and North Carolina personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for North Carolina personal income taxes. It should also
be noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL OREGON MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Oregon State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Oregon Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Oregon considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Oregon issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Oregon issuers. Neither the Trust nor the Portfolio has independently verified
this information.
As of September 1, 1996, $3.64 billion in general obligation bonds issued
by the State of Oregon and its agencies and instrumentalities were
outstanding, including $125.1 million in general obligation bonds supported by
the budget for the State's general fund and $3.52 billion of self-supporting
general obligation bonds. The State's self-supporting general obligation bonds
include $2.78 billion of State veteran's bonds, which, in the event of poor
economic conditions resulting in an increased number of mortgage defaults,
could cease to be self-supporting. All of the existing and outstanding general
obligation bonds of the State have been issued under specific State
constitutional provisions that authorize the issuance of such bonds and
provide authority for ad valorem taxation to pay the principal of and interest
on such bonds. With the exception of the veteran's bonds, for which no more
than two mills on each dollar valuation may be levied to pay principal and
interest, the authority of the State to tax property for the payment of its
general obligation bonds is unlimited. Since at least 1950, the State has not
imposed ad valorem tax for the payment of any of its obligations because other
revenues, including those generated by the self-supporting bonds, have been
sufficient.
In addition to general obligation bonds, various state statutes authorize
the issuance of State revenue bonds and certificates of participation. These
limited obligations of the State or its agencies or instrumentalities may be
payable from a specific project or source, including lease rentals. The State
is not authorized to impose ad valorem taxes on property for the payment of
principal and interest on these bonds, so they are more sensitive to changes
in the economy. There can be no assurance that future economic problems will
not adversely affect the market value of Oregon obligations held by the
Portfolio or the ability of the respective obligors (both private and
governmental) to make required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal source of State
tax revenues are personal income and corporate income taxes. For the 1995-97
biennium, approximately 96.6% of the State's legislatively budgeted revenues
are projected to come from combined income taxes, insurance taxes, gift and
inheritance taxes, and cigarette and tobacco taxes.
Over the past several years, a number of species of Oregon wildlife have
been added to the Endangered Species list, including the northern spotted owl
and certain populations of salmon. The spotted owl listing has already had a
substantial economic impact on the State's economy, primarily through a
reduction in timber harvests from federal lands. The salmon listings also have
had a substantial economic impact, primarily through increased electricity
rates and related impacts on rate-sensitive industries such as the aluminum
industry. Efforts to protect the spotted owl and salmon and steelhead
populations may eventually affect a wide variety of agricultural, industrial,
recreational and land use activities, with corresponding impacts on long-term
economic growth. The magnitude and extent of any future environmental action
is difficult to predict.
Ballot Measure 5. Article XI, section 11b of the Oregon Constitution,
adopted by Oregon's voters in November 1990 ("Ballot Measure 5"), imposes an
aggregate limit on the rate of property taxes, including ad valorem taxes,
that may be levied against any real or personal property. The limit is subject
to certain exceptions and is being phased in over a five-year period.
Beginning with the tax year that starts on July 1, 1996, the final year of the
phase-in period, not more than $15 per $1,000 of real market value can be
levied against any piece of property. Of this amount, $5 may be used for
public education, and the remaining $10 may be used for general governmental
purposes.
The limitations of Ballot Measure 5 do not apply to taxes imposed to pay
the principal of and interest on bonded indebtedness authorized by a specific
provision of the State Constitution or which has received voter approval.
Therefore, since the State has traditionally issued only general obligation
indebtedness that is authorized by specific provisions of the State
Constitution and units of local government have generally adopted policies of
seeking specific approval for all general obligation indebtedness, the ability
of the State and units of local government to levy taxes to service their
general obligation indebtedness has generally avoided the limit. In addition,
because the State currently receives its revenues from sources other than
property taxes, Ballot Measure 5 has not directly affected State revenues.
Ballot Measure 5 has controlled the growth of local property tax revenues
since its adoption. Although the growth in local property valuations during
the period 1991 to 1995 has somewhat mitigated the potential impacts of Ballot
Measure 5, revenues of local government units in Oregon have generally been
adversely affected by the adoption of Ballot Measure 5. This appears to be
particularly true with respect to school districts operating revenues.
Ballot Measure 5 required the State to replace a substantial portion of
the lost revenues of local school districts through the end of fiscal year
1995-1996. Although this obligation has now expired, the extent of revenue
loss perceived to have been incurred by local school districts indicates that
the State may continue to provide significant revenue relief to these
governmental units. In addition, the provisions of the initiative known as
Ballot Measure 47, as defined and discussed below, is expected to also result
in the State making further financial assistance available to certain units of
local government as a result of further restrictions and limitations placed
upon the ability of units of local government to generate revenues through
Oregon's system of ad valorem property taxation.
Ballot Measure 47. At the November 5, 1996 general election, the voters
of the State of Oregon approved a constitutional amendment creating new
sections 11g, 11h, 11i and 11j within Article XI of the Oregon Constitution.
The initiative proposing these amendments was commonly referred to as "Ballot
Measure 47" or "Cut and Cap."
Ballot Measure 47 will generally reduce the revenues of local governements
available from ad valorem property taxes starting on July 1, 1997. For fiscal
year 1997-98, the amount of tax which may be collected from each property
subject to taxation is limited to the lesser of the amount due for fiscal year
1995-96 reduced by ten percent (10%) or the amount due for fiscal year
1994-95. Future increases in annual ad valorem property taxes which can be
collected from each property subject to taxation are limited to three percent
(3%) unless certain exceptions apply. Ballot Measure 47 also contains
provisions limiting local governments' ability to shift activities previously
funded in whole or in part from ad valorem property tax revenues to a user fee
or other form of non-ad valorem property tax basis. One of the exceptions is
for taxes levied to pay bonded indebtedness which has been approved by the
voters in accordance with certain specific and new guidelines contained in
Ballot Measure 47.
By its terms, Ballot Measure 47 does not affect the revenues of
governmental units which do not rely upon the collection of ad valorem
property taxes, such as the State, or governmental operations which are
supported solely from user fees and charges, such as many municipal utilities.
However, its revenue reducing provisions are expected to create new financial
burdens on the State revenue resources as well as on the revenue resources of
units of government which levy and collect ad valorem property taxes. Such
burdens are expected to arise, at least in part, from the potential need for
the State to assist units of local government adversely affected by the
implementation of Ballot Measure 47. Although the actual impact of Ballot
Measure 47 on a particular unit of local governement cannot presently be
determined because the methodology for applying its provisions to individual
properties has not yet been established, it is anticipated that the general
fund operations of many local government units will be materially adversely
affected by its revenue reduction and revenue growth limiting provisions.
Ballot Measure 11. In November 1994, voters approved three measures
affecting the State's penal system. The most significant in terms of financial
impact for the State is Ballot Measure 11, which established mandatory minimum
prison sentences for certain felons. It is anticipated that this initiative
will require construction of a substantial number of additional prison beds.
Currently, the State expects to fund construction from sources other than the
State general fund.
Several litigation matters are pending involving the State. These matters
include (i) an action filed by several out-of-state insurers challenging
Oregon's gross premium tax on out-of-state insurers and seeking refunds of
taxes previously paid, which could result in the State being liable for
approximately $50 million in refunds and (ii) several cases in which federal
retirees have challenged the validity of a State Public Employees Retirement
System benefit increase to offset the taxation of such benefits or have sought
refunds of State taxes paid on federal retirement benefits. In addition, the
Oregon Supreme Court has ruled against the State in an action brought to
require the State to return $81 million that was transferred in 1983 from the
State's Industrial Accident Fund ("SAIF") to the State's general fund. The
amount required to be returned to SAIF, including interest, has been estimated
to be approximately $280 million. The claims have been settled for a State
obligation to pay $225 million, $65 million of that amount has been paid. $80
million is payable at the end of the 1997 legislative session, and an
additional $80 million is payable at the end of the 1999 legislative session.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $129,758,655. For
the fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$574,189 (equivalent to 41% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $609,837 (equivalent to 0.42% of the Portfolio's average
daily net assets for such year). For the eleven months ended August 31, 1994,
the Portfolio paid BMR advisory fees of $534,681 (equivalent to 0.41%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and may be continued as described under "Investment Adviser and Administrator"
in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995 and
for the period from the start of business, December 28, 1993, to the fiscal
year ended August 31, 1994, $18,532, $20,572 and $17,241, respectively, of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from September 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $2,264 under that Plan on sales of Fund shares. During
the same period, the Fund paid sales commission payments under that Plan to
the Principal Underwriter aggregating $2,952. During the fiscal year ended,
August 31, 1996, CDSCs aggregating approximately $290 were imposed on early
redeeming shareholders and paid to the Principal Underwriter. The CDSCs and
sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at August 31, 1996, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $235,000 (which amount was
equivalent to 30.7% of the Fund's net assets on such date). This charge will
be extinguished at no expense to the Fund on January 31, 1997. During the
fiscal year ended August 31, 1996, the Fund paid or accrued service fees under
the Plan aggregating $1,651, of which $1,312 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter. A portion of
such fees was paid under the service fee provisions of the Distribution Plan
and the balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $3,017, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $62.50 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $39,752 on portfolio security transactions aggregating
$204,677,669 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended August 31, 1995 and for the eleven months ended August
31, 1994, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1996, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1996, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex
(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- --------- ----------- --------------
Donald R. Dwight .......... $0 $1,542(2) $142,500(4)
Samuel L. Hayes, III ...... 0 1,687(3) 153,750(5)
Norton H. Reamer .......... 0 1,645 142,500
John L. Thorndike ......... 0 1,729 147,500
Jack L. Treynor ........... 0 1,683 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $578 of deferred compensation.
(3) Includes $570 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Thomas M. Metzold (38), Vice President.
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Metzold was elected Vice
President of the Portfolio on November 18, 1996. He has been a Vice President
of Eaton Vance since 1991 and of BMR since 1992. Mr. Metzold has been an
employee of Eaton Vance since 1987.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from December 24, 1991
through August 31, 1996 and for the one year period ended August 31, 1996. The
total return for the period prior to the Fund's commencement of operations on
December 28, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the change in
the Fund's distribution fees and/or service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- --------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- --------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 12/24/91* $962.50 $1,271.30 32.11% 6.12% 27.13% 5.25%
1 Year Ended
8/31/96 8/31/95 $962.50 $1,003.24 4.25% 4.25% 0.32% 0.32%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.55%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.55% would be 7.25%,
assuming a combined federal and State tax rate of 37.21%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 15.0% of the
outstanding shares, which were held on behalf of their customers who are the
beneficial owners of such shares, and as to which they have voting power under
certain limited circumstances. In addition, as of such date, the following
shareholders owned of record the percentage of outstanding shares indicated
after their names: John H. Dunlevy, Bend, Oregon, 7.8%; Donald Lufkin
Jenrette, Jersey City, NJ, 7.1%; Joycelyn Lauree Dolan, 5.1%. To the knowledge
of the Trust, no other person owned of record or beneficially 5% or more of
the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Oregon Tax Free Fund to EV
Classic Oregon Municipals Fund on January 1, 1996 and to EV Traditional Oregon
Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Oregon State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND OREGON STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ---------------------- OR STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 22.65% 5.17% 5.82% 6.46% 7.11% 7.76% 8.40% 9.05%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 34.48 6.11 6.87 7.63 8.39 9.16 9.92 10.68
$ 58,151 - $121,300 $ 96,901 - $147,700 37.21 6.37 7.17 7.96 8.76 9.56 10.35 11.15
$121,301 - $263,750 $147,701 - $263,750 41.76 6.87 7.73 8.59 9.44 10.30 11.16 12.02
Over $263,750 Over $263,750 45.04 7.28 8.19 9.10 10.01 10.92 11.83 12.74
</TABLE>
*Net amount subject to federal and Oregon personal income tax after deductions
and exemptions.
+The first tax bracket is calculated using the highest Oregon tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that Oregon taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and
39.6% over the same ranges of income. The assumed Oregon State income tax
rate is 9%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Oregon State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those
indicated above. The tax brackets and taxable equivalent yields do not take
into account the limited deductibility of federal income tax withholding in
arriving at state taxable income, which may decrease the taxable equivalent
yield of the Fund to certain investors.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Oregon personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Oregon personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated
as a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not appliable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL SOUTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and South Carolina State
personal income taxes. The Fund currently seeks to achieve its investment
objective by investing its assets in the South Carolina Municipals Portfolio
(the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain South Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in South Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of South Carolina issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The South Carolina Constitution requires the General Assembly to provide a
balanced budget and requires that if there is a deficit, such deficit shall be
provided for in the succeeding fiscal year. The State Constitution also
provides that (i) the State Budget and Control Board may, if a deficit appears
likely, effect such reductions in appropriations as may be necessary to
prevent a deficit, (ii) annual increases in State appropriations may not
exceed the average growth rate of the economy of the State, (iii) that the
annual increase in the number of State employees may not exceed the average
growth of the population of the State, and (iv) a General Reserve Fund be
maintained in an amount equal to 3% of General Fund revenue for the latest
fiscal year. The State also maintains a Capital Reserve Fund equal to 2% of
the General Reserve Fund.
Despite several spending reductions in fiscal 1992, the State recorded a
budgetary basis operating deficit of $54 million due to lower than anticipated
sales and corporate-income tax revenues. The State ended fiscal 1992 with only
$7.6 million in its budgetary general fund. In June 1993, the presidential
base-closing commission voted to close the Charleston Naval Base. South
Carolina has estimated lost revenues of $100 million over the three-year
period from July 1, 1993 to June 30, 1996 due to the closing. There can be no
guarantee that the actual cost will not be more or less than the State's
estimate. Budgetary General Fund revenues and expenditures for fiscal 1993
were $3.673 billion and $3.521 billion, respectively. There was a $151 million
surplus of which $33.7 million was deposited into the General Reserve Fund
("Rainy Day Fund") bringing its total to $100 million. Fiscal 1994 had
budgeted revenues and expenditures of $3.828 billion and $3.795 billion,
respectively. No new taxes were implemented. Fiscal 1994 ended with a General
Fund surplus of $248 million. The General Reserve Fund is now at its fully
funded level of $110.2 million. Fiscal 1995 has budgeted $3.93 billion for
expenditures with no new taxes expected.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $58,318,147. For
the fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$201,026 (equivalent to 0.33% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $198,498 (equivalent to 0.33% of the Portfolio's average
daily net assets for such year). For the period from the start of business,
February 1, 1994, to August 31, 1994, the Portfolio paid BMR advisory fees of
$106,785 (equivalent to 0.31% (annualized) of the Portfolio's average daily
net assets for such period). The Portfolio's Investment Advisory Agreement
with BMR is dated February 1, 1994 and may be continued as described under
"Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal year ended August 31, 1996, 1995 and for
the period from the start of business, February 14, 1994, to the fiscal year
ended August 31, 1994, $14,568, $14,531 and $9,477, respectively, of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from September 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $2,867 under that Plan on sales of Fund shares. During
the same period, the Fund paid sales commission payments under that Plan to
the Principal Underwriter aggregating $4,102. During the fiscal year ended
August 31, 1996, CDSCs aggregating approximately $25 were imposed on early
redeeming shareholders and paid to the Principal Underwriter. The CDSCs and
sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at August 31, 1996, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $229,000 (which amount was
equivalent to 25.4% of the Fund's net assets on such date). This charge will
be extinguished at no expense to the Fund on January 31, 1997. During the
fiscal year ended August 31, 1996, the Fund paid or accrued service fees under
the Plan aggregating $2,155, of which $1,683 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter. A portion of
such fees was paid under the service fee provisions of the Distribution Plan
and the balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $966, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid the
Principal Underwriter $20.00 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $18,253 on portfolio security transactions aggregating
$136,816,360 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended August 31, 1995 and for the period from the start of
business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1996, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1996, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex
(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- --------- --------- ------------
Donald R. Dwight .......... $0 $1,129(2) $142,500(4)
Samuel L. Hayes, III ...... 0 1,308(3) 153,750(5)
Norton H. Reamer .......... 0 1,268 142,500
John L. Thorndike ......... 0 1,348 147,500
Jack L. Treynor ........... 0 1,274 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $424 of deferred compensation.
(3) Includes $446 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from October 2, 1992
through August 31, 1996. The total return for the period prior to the Fund's
commencement of operations on February 14, 1994 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. Such performance has not been adjusted to reflect the change in
the Fund's distribution fees and/or service fees and certain other expenses.
The performance reflects the sales charge and fee structure for the Fund
effective February 1, 1997.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT INVESTMENT ---------------------------- ----------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ------ ------- ------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 10/2/92* $962.50 $1,185.40 23.14% 5.45% 18.54% 4.43%
1 Year Ended 8/31/96 8/31/95 $962.50 $1,012.14 5.19% 5.19% 1.21% 1.21%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.99%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.99% would be 7.78%,
assuming a combined federal and State tax rate of 35.83%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 50.0% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. As of the same date, the following shareholders
owned beneficially and of record, the percentages of outstanding shares of the
Fund indicated after their names: Barbara B. McDaniel, Awendaw, South Carolina
(9.4%) and PaineWebber FBO Douglas P. Magann and Sarah R. Magann JTWROS,
Georgetown, South Carolina (8.9%). To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic South Carolina Tax Free Fund to
EV Classic South Carolina Municipals Fund on January 1, 1996 and to EV
Traditional South Carolina Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
TAX EXEMPT VERSUS TAXABLE SECURITIES
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and South Carolina State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND SOUTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ---------------------- SC STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 58,151 - $121,300 $ 96,901 - $147,700 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$121,301 - $263,750 $147,701 - $263,750 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over - $263,750 Over - $263,750 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
</TABLE>
*Net amount subject to federal and South Carolina personal income tax after
deductions and exemptions.
+The first tax bracket is calculated using the highest South Carolina tax
rate within the bracket. Taxpayers with taxable income within this bracket
may have a lower combined bracket and taxable equivalent yield than
indicated above. The combined tax brackets assume that South Carolina taxes
are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above
are 15%, 28%, 31%, 36% and 39.6% over the same ranges of income. The assumed
South Carolina State income tax rate is 7%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including South Carolina State income
tax) for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint
filers with Adjusted Gross Income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and South Carolina personal income taxes, other
income received by the Portfolio and allocated to the Fund may be taxable. The
table does not take into account state or local taxes, if any, payable on Fund
distributions except for South Carolina personal income taxes. It should also
be noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credit that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL TENNESSEE
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Tennessee State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Tennessee Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Tennessee considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Tennessee issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Tennessee issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Tennessee's State Constitution requires that (1) the total expenditures of
the State for any fiscal year shall not exceed the State's revenues and
reserves, including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations
from State tax revenues exceed the estimated rate of growth of the State's
economy. In the past, the Governor and the General Assembly have had to
restrict expenditures to comply with the State Constitution.
The Tennessee economy generally tends to rise and fall in a roughly
parallel manner with the U.S. economy. Like the U.S. economy, the Tennessee
economy entered recession in the last half of 1990 which continued throughout
1991 and into 1992 as the Tennessee indexes of coincident and leading economic
indicators trended downward throughout the period. However, the Tennessee
economy gained strength during the latter part of 1992 and this renewed
vitality steadily continued through 1993, 1994 and into 1995. The latter half
of 1995 and the first part of 1996 has seen the State's economy become
slightly inconsistent in its performance, with most 1996 economic data
revealing some downward movement in the leading economic index. However, many
experts believe that the State will achieve modest economic gains in 1996.
State revenue collections for 1996 are falling below projections, possibly
requiring the State to reduce expenditures for the fiscal year in order to
avoid depletion of the rainy-day fund. The State's rainy-day fund remained
constant from December 1994 to December 1995 at $101 million and remains so as
of July 1, 1996.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $56,065,353. For
the fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$181,502 (equivalent to 0.31% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $177,788 (equivalent to 0.31% of the Portfolio's average
daily net assets for such year). For the eleven months ended August 31, 1994,
the Portfolio paid BMR advisory fees of $125,060 (equivalent to 0.28%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and may be continued as described under "Investment Adviser and Administrator"
in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995 and
for the period from the start of business, December 9, 1993, to the fiscal
year ended August 31, 1994, $19,017, $16,872 and $13,987, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from September 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $2,898 under that Plan on sales of Fund shares. During
the same period, the Fund paid sales commission payments under that Plan to
the Principal Underwriter aggregating $3,416. During the fiscal year ended,
August 31, 1996, CDSCs aggregating approximately $265 were imposed on early
redeeming shareholders and paid to the Principal Underwriter. The CDSCs and
sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at August 31, 1996, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $119,000 (which amount was
equivalent to 8.8% of the Fund's net assets on such date). This charge will be
extinguished at no expense to the Fund on January 31, 1997. During the fiscal
year ended August 31, 1996, the Fund paid or accrued service fees under the
Plan aggregating $2,157, of which $1,851 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter. A portion of such
fees was paid under the service fee provisions of the Distribution Plan and
the balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $10,978, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid
the Principal Underwriter $25.00 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $9,892 on portfolio security transactions aggregating
$85,993,505 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended August 31, 1995 and for the eleven months ended August
31, 1994, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1996, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1996, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex
(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------
<S> <C> <C> <C>
Donald R. Dwight ..................................................... $0 $1,129(2) $142,500(4)
Samuel L. Hayes, III ................................................. 0 1,308(3) 153,750(5)
Norton H. Reamer ..................................................... 0 1,254 142,500
John L. Thorndike .................................................... 0 1,348 147,500
Jack L. Treynor ...................................................... 0 1,274 147,500
</TABLE>
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $424 of deferred compensation.
(3) Includes $446 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (33) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 25, 1992
through August 31, 1996 and for the one-year period ended August 31, 1996. The
total return for the period prior to the Fund's commencement of operations on
December 9, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the change in
the Fund's distribution fees and/or service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN EXCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 8/25/92* $962.50 $1,215.23 26.22% 5.96% 21.52% 4.97%
1 Year Ended 8/31/96 8/31/95 $962.50 $1,015.93 5.52% 5.52% 1.59% 1.59%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.98%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.98% would be 7.68%,
assuming a combined federal and State tax rate of 35.14%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 49.0% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date, the following shareholders owned beneficially and
of record the percentages of the outstanding shares of the Fund indicated after
their names: Beatrice E. Kennedy TTEE U/A DTD 1/16/92 Amended U/A DTD 5/10/96
FBO Beatrice E. Kennedy, Knoxville, TN, 8.2%; Mildred G. Pinson & Carolin P.
Lynch JTWROS, Chattanooga, TN, 6.0%. To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
shares on such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Tennessee Tax Free Fund to EV
Classic Tennessee Municipals Fund on January 1, 1996 and to EV Traditional
Tennessee Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Tennessee State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND TENNESSEE STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ---------------------- TN STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$121,301 - $263,750 $147,701 - $263,750 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $263,750 Over $263,750 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
</TABLE>
*Net amount subject to federal and Tennessee personal income tax after
deductions and exemptions.
+The combined tax brackets assume that Tennessee taxes are itemized deductions
for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and
higher taxable equivalent yield than those indicated above. The applicable
federal tax rates within the brackets set forth above ar 15%, 28%, 31%, 36%
and 39.6% over the same ranges of income. The assumed Tennessee State income
tax rate is 6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Tennessee State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint
filers with adjusted gross income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Tennessee personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Tennessee personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL VIRGINIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Virginia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Virginia considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Virginia issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Virginia issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The Commonwealth of Virginia has had a tradition of low debt, and a large
proportion of its general obligation bonds has been supported by particular
revenue-producing projects. However, a trend towards more use of non-general
obligation debt, which is not subject to constitutional limits on borrowing,
is now changing the Commonwealth's debt profile. In recent years, the
Commonwealth has expanded its limited obligation borrowings through various
financing vehicles such as the Virginia Public Building Authority and the
Virginia College Building Authority, and has embarked upon a substantial
transportation bonding program to which certain increases in retail sales and
motor vehicle-related taxes enacted in 1986 are dedicated. The general fund is
the Commonwealth's major operating fund and accounts for about half of
Commonwealth expenditures. It covers all functions except highways and Federal
grant disbursements, for which there are special revenue funds.
While the Commonwealth has had a long history of sound financial
operations, variations of a cyclical nature have occurred during the past
several years. During fiscal year 1992, financial operations were somewhat
more favorable than expected. Revenues of $5.6 billion exceeded expenditures
by approximately $150 million with $44 million in increased revenues and the
balance in decreased expenditures ordered by the Governor in December of 1991.
The closing balance at June 30, 1992 was $195.1 million, of which $142.3
million will be reappropriated, leaving $52.8 million as an unreserved,
undesignated balance, the first such balance in four years. The fiscal 1993
ending balance for the General Fund was $331.8 million of which $59.7 is
unreserved, undesignated. Revenues for the 1993 fiscal year were 8.9% higher
than fiscal year 1992, a $103 million increase. At the close of the biennium
ending June 30, 1994, the Fund balance amounted to $518.7 million of which $81
million was reserved, including $79.9 million for the Revenue Stabilization
Fund. Preliminary results for fiscal 1995 indicate a general fund surplus of
$65 million.
Virginia's economy is generally affected by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of
Virginia are manufacturing (such as electronic equipment, shipbuilding and
chemical products), minerals (chiefly coal), service sector occupations
(including banking and insurance), agriculture and tourism. Unemployment rates
are typically below the national average, but because of a large military and
civilian government employment component, and the related civilian employment,
a substantial decrease in defense or other governmental spending could have a
material adverse effect on both the unemployment rate and the economy of the
Commonwealth in general.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1996, the Portfolio had net assets of $177,644,321. For
the fiscal year ended August 31, 1996, the Portfolio paid BMR advisory fees of
$811,731 (equivalent to 0.43% of the Portfolio's average daily net assets for
such year). For the fiscal year ended August 31, 1995, the Portfolio paid BMR
advisory fees of $834,074 (equivalent to 0.44% of the Portfolio's average
daily net assets for such year). For the eleven months ended August 31, 1994,
the Portfolio paid BMR advisory fees of $744,841 (equivalent to 0.43%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and may be continued as described under "Investment Adviser and Administrator"
in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended August 31, 1996 and 1995, and
for the period from the start of business, December 17, 1993, to the fiscal
year ended August 31, 1994, $16,876, $19,518 and $13,546, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from September 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $3,392 under that Plan on sales of Fund shares. During
the same period the Fund paid sales commission payments under that Plan to the
Principal Underwriter aggregating $1,428. During the fiscal year ended, August
31, 1996, CDSCs aggregating approximately $50 were imposed on early redeeming
shareholders and paid to the Principal Underwriter. The CDSCs and sales
commissions paid to the Principal Underwriter reduced Uncovered Distribution
Charges. As at August 31, 1996, the outstanding Uncovered Distribution Charges
of the Principal Underwriter calculated under the Distribution Plan amounted
to approximately $169,000 (which amount was equivalent to 15.3% of the Fund's
net assets on such date). This charge will be extinguished at no expense to
the Fund on January 31, 1997. During the fiscal year ended August 31, 1996,
the Fund paid or accrued service fees under the Plan aggregating $2,712, of
which $2,030 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter. A portion of such fees was paid under
the service fee provisions of the Distribution Plan and the balance was paid
under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to August 31, 1996 was $2,476, which amount was paid to
Authorized Firms. For the fiscal year ended August 31, 1996, the Fund paid
the Principal Underwriter $50.00 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended August 31, 1996, the Portfolio paid brokerage
commissions of $50,618 on portfolio security transactions aggregating
$247,838,146 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended August 31, 1995 and for the eleven months ended August
31, 1994, the Portfolio paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1996, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1996, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex
(1):
<TABLE>
<CAPTION>
NAME AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
FROM FUND FROM PORTFOLIO FUND COMPLEX
--------- -------------- ------------
<S> <C> <C> <C>
Donald R. Dwight ..................................................... $0 $2,091(2) $142,500(4)
Samuel L. Hayes, III ................................................. 0 2,192(3) 153,750(5)
Norton H. Reamer ..................................................... 0 2,147 142,500
John L. Thorndike .................................................... 0 2,238 147,500
Jack L. Treynor ...................................................... 0 2,228 147,500
</TABLE>
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $784 of deferred compensation.
(3) Includes $737 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) is a Vice President
of the Portfolio. Mr. Browse has served as a Vice President of the Portfolio
since December 1, 1995. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993 and an employee of Eaton Vance since 1992. Mr. Browse is an
officer of various investment companies managed by Eaton Vance or BMR. Prior
to joining Eaton Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity
Management & Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from July 26, 1991 through
August 31, 1996 and for the five-and one-year periods ended August 31, 1996.
The total return for the period prior to the Fund's commencement of operations
on December 17, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the change in
the Fund's distribution fees and or service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ----------------------------
PERIOD** DATE INVESTMENT* ON 8/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ------ ------- ------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 7/26/91* $962.50 $1,304.93 35.55% 6.14% 30.49% 5.36%
5 Years Ended
8/31/96 8/31/91 $962.50 $1,291.33 34.20% 6.06% 29.13% 5.25%
1 Year Ended
8/31/96 8/31/95 $962.50 $1,011.96 5.10% 5.10% 1.20% 1.20%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1996, the yield of the Fund was
4.99%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.99% would be 7.67%,
assuming a combined federal and State tax rate of 34.97%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 30, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of November 30, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 21.01% of the
outstanding shares, which were held on behalf of their customers who are the
beneficial owners of such shares, and as to which they had voting power under
certain limited circumstances. In addition, as of the same date, the following
shareholders owned of record the percentages of outstanding shares indicated
after their names: Olive Young Brown, TTEE FBO Olive Young Brown Rev Trust, U/
A 4/1/94, 10.93%; George L. Erion III TTEE Jennifer E. Mathorly Irrevocable
Trust, dtd 12/14/89, 8.9%; Painewebber FBO Olive M. Wolters, 8.3%; U.S.
Clearing Corp. FBO 139-22898-13, 8.0%; Painewebber FBO Robert L. Huff, 6.1%.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Virginia Tax Free Fund to EV
Classic Virginia Municipals Fund on January 1, 1996 and to EV Traditional
Virginia Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Virginia State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND VIRGINIA STATE
SINGLE RETURN JOINT RETURN FEDERAL AND TAX EXEMPT YIELD OF:
- ------------------- ---------------------- VA STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------- ------------- -----------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 19.89% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.14 5.89 6.63 7.37 8.10 8.84 9.58 10.32
$ 58,151 - $121,300 $ 96,901 - $147,700 34.97 6.15 6.92 7.69 8.46 9.23 10.00 10.76
$121,301 - $263,750 $147,701 - $263,750 39.68 6.63 7.46 8.29 9.12 9.95 10.78 11.60
Over $263,750 Over $263,750 43.07 7.03 7.90 8.78 9.66 10.54 11.42 12.30
</TABLE>
*Net amount subject to federal and Virginia personal income tax after
deductions and exemptions.
+The first tax bracket is calculated using the highest Virginia tax rate
within the bracket. Taxpayers with taxable income within such brackets may
have lower combined tax brackets and taxable equivalent yields than indicated
above. The combined tax brackets assume that Virginia taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. The
applicable federal tax rates within each of these combined brackets are 15%,
28%, 31%, 36% and 39.6%. The assumed Virginia State income tax rate is 5.75%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Virginia State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint
filers with adjusted gross income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Virginia personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for regular Virginia personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax,
and regular Virginia personal income tax, is treated as a tax preference item
which could subject the recipient to the federal and Virginia alternative
minimum taxes. The illustrations assume that the federal and Virginia
alternative minimum taxes are not applicable and do not take into account any
tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
[LOGO]
EATON VANCE
=====================
Mutual Funds
EV TRADITIONAL
MUNICIPAL
FUNDS
STATEMENT OF ADDITIONAL
INFORMATION
JANUARY 1, 1997
EV TRADITIONAL ALABAMA MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND
EV TRADITIONAL MISSOURI MUNICIPALSFUND
EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL VIRGINIA MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-TFC1/1SAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
INCLUDED IN PART A FOR THE FUNDS LISTED BELOW ARE "FINANCIAL
HIGHLIGHTS" FOR THE PERIOD FROM THE START OF BUSINESS TO THE FISCAL
YEAR ENDED AUGUST 31, 1996:
EV Marathon Alabama Municipals Fund (start of business May 1, 1992)
EV Marathon Arkansas Municipals Fund (start of business October 2,
1992)
EV Marathon Georgia Municipals Fund (start of business December 23,
1991)
EV Marathon Kentucky Municipals Fund (start of business December
23, 1991)
EV Marathon Louisiana Municipals Fund (start of business October 2,
1992)
EV Marathon Maryland Municipals Fund (start of business February 3,
1992)
EV Marathon Missouri Municipals Fund (start of business May 1,
1992)
EV Marathon North Carolina Municipals Fund (start of business
October 23, 1992)
EV Marathon Oregon Municipals Fund (start of business December 24,
1991)
EV Marathon South Carolina Municipals Fund (start of business
October 2, 1992)
EV Marathon Tennessee Municipals Fund (start of business August 25,
1992)
EV Marathon Virginia Municipals Fund (start of business July 26,
1992)
EV Traditional Alabama Municipals Fund (start of business December
7, 1993)
EV Traditional Arkansas Municipals Fund (start of business February
9, 1994)
EV Traditional Georgia Municipals Fund (start of business December
7, 1993)
EV Traditional Kentucky Municipals Fund (start of business December
7, 1993)
EV Traditional Louisiana Municipals Fund (start of business
February 14, 1994)
EV Traditional Maryland Municipals Fund (start of business December
10, 1993)
EV Traditional Missouri Municipals Fund (start of business December
7, 1993)
EV Traditional North Carolina Municipals Fund (start of business
December 7, 1993)
EV Traditional Oregon Municipals Fund (start of business December
23, 1993)
EV Traditional South Carolina Municipals Fund (start of business
February 14, 1994)
EV Traditional Tennessee Municipals Fund (start of business
December 9, 1992)
EV Traditional Virginia Municipals Fund (start of business December
17, 1993)
INCORPORATED BY REFERENCE INTO PART B ARE THE FINANCIAL STATEMENTS
CONTAINED IN THE ANNUAL REPORTS FOR THE FOLLOWING FUNDS, EACH DATED
AUGUST 31, 1996 (WHICH WERE PREVIOUSLY FILED ELECTRONICALLY PURSUANT
TO SECTION 30(B)(2) OF THE INVESTMENT COMPANY ACT OF 1940):
<TABLE>
<S> <C>
EV Marathon Alabama Municipals Fund EV Traditional Alabama Municipals Fund
EV Marathon Arkansas Municipals Fund EV Traditional Arkansas Municipals Fund
EV Marathon Georgia Municipals Fund EV Traditional Georgia Municipals Fund
EV Marathon Kentucky Municipals Fund EV Traditional Kentucky Municipals Fund
EV Marathon Louisiana Municipals Fund EV Traditional Louisiana Municipals Fund
EV Marathon Maryland Municipals Fund EV Traditional Maryland Municipals Fund
EV Marathon Missouri Municipals Fund EV Traditional Missouri Municipals Fund
EV Marathon North Carolina Municipals Fund EV Traditional North Carolina Municipals Fund
EV Marathon Oregon Municipals Fund EV Traditional Oregon Municipals Fund
EV Marathon South Carolina Municipals Fund EV Traditional South Carolina Municipals Fund
EV Marathon Tennessee Municipals Fund EV Traditional Tennessee Municipals Fund
EV Marathon Virginia Municipals Fund EV Traditional Virginia Municipals Fund
(Accession No. 0000950135-96-005156) (Accession No. 0000950135-96-005148)
</TABLE>
<PAGE>
THE FINANCIAL STATEMENTS CONTAINED IN EACH FUND'S ANNUAL REPORT ARE AS
FOLLOWS:
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
ALSO INCORPORATED BY REFERENCE INTO PART B ARE THE FINANCIAL STATEMENTS
OF ALABAMA MUNICIPALS PORTFOLIO, ARKANSAS MUNICIPALS PORTFOLIO, GEORGIA
MUNICIPALS PORTFOLIO, KENTUCKY MUNICIPALS PORTFOLIO, LOUISIANA
MUNICIPALS PORTFOLIO, MARYLAND MUNICIPALS PORTFOLIO, MISSOURI
MUNICIPALS PORTFOLIO, NORTH CAROLINA MUNICIPALS PORTFOLIO, OREGON
MUNICIPALS PORTFOLIO, SOUTH CAROLINA MUNICIPALS PORTFOLIO, TENNESSEE
MUNICIPALS PORTFOLIO AND VIRGINIA MUNICIPALS PORTFOLIO, WHICH ARE
CONTAINED IN THE ANNUAL REPORT DATED AUGUST 31, 1996 OF THE
CORRESPONDING FUNDS. THE FINANCIAL STATEMENTS FOR EACH PORTFOLIO
CONTAINED IN EACH FUND'S ANNUAL REPORT ARE AS FOLLOWS:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Independent Auditors' Report
(B) EXHIBITS:
(1)(a) Amended and Restated Declaration of Trust of Eaton Vance
Municipals Trust dated January 11, 1993, filed as Exhibit
(1)(a) to Post-Effective Amendment No. 55 and incorporated
herein by reference.
(b) Amendment and Restatement of Establishment and Designation of
Series dated October 18, 1996 filed as Exhibit (1)(b) to
Post-Effective Amendment No. 61 and incorporated herein by
reference.
(c) Establishment and Designation of Classes of Shares of
Beneficial Interest, without Par Value, dated November 18, 1996
filed as Exhibit (1)(c) to Post-Effective Amendment No. 62 and
incorporated herein by reference.
(2)(a) By-Laws as amended October 21, 1987 filed as Exhibit (2)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust dated
December 13, 1993 filed as Exhibit (2)(b) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(3) Not applicable
(4) Not applicable
(5) Not applicable
(6)(a)(1) Distribution Agreement between Eaton Vance Municipals Trust (on
behalf of its Classic Series) and Eaton Vance Distributors,
Inc. effective November 1, 1996 with attached Schedule A
effective November 1, 1996) filed as Exhibit (6)(a)(1) to Post-
Effective Amendment No. 61 and incorporated herein by
reference.
(2) Distribution Agreement between Eaton Vance Municipals Trust (on
behalf of its Marathon Series) and Eaton Vance Distributors,
Inc. effective November 1, 1996 with attached Schedule A
effective November 1, 1996) filed as Exhibit (6)(a)(2) to Post-
Effective Amendment No. 61 and incorporated herein by
reference.
(3) Distribution Agreement between Eaton Vance Municipals Trust (on
behalf of its Traditional Series) and Eaton Vance Distributors,
Inc. effective November 1, 1996 with attached Schedule A
effective November 1, 1996) filed as Exhibit (6)(a)(3) to
Post-Effective Amendment No. 61 and incorporated herein by
reference.
(4) Distribution Agreement between Eaton Vance Municipals Trust on
behalf of Massachusetts Municipal Bond Portfolio and Eaton
Vance Distributors, Inc. effective November 1, 1996 filed as
Exhibit (6)(a)(4) to Post-Effective Amendment No. 61 and
incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors, Inc.
and Authorized Dealers filed as Exhibit (6)(b) to
Post-Effective Amendment No. 61 to the Registration Statement
of Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241) and
incorporated herein by reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as Exhibit
(6)(c) to Post-Effective Amendment No. 61 to the Registration
Statement of Eaton Vance Growth Trust (File Nos. 2-22019,
811-1241) and incorporated herein by reference.
(7) The Securities and Exchange Commission has granted the
Registrant an exemptive order that permits the Registrant to
enter into deferred compensation arrangements with its
independent Trustees. See in the Matter of Capital Exchange
Fund, Inc., Release No. IC-20671 (November 1, 1994).
(8)(a) Custodian Agreement with Investors Bank & Trust Company dated
October 15, 1992 filed as Exhibit (8) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(b) Amendment to Custodian Agreement with Investors Bank & Trust
Company dated October 23, 1995 filed as Exhibit (8)(b) to
Post-Effective Amendment No. 57 and incorporated herein by
reference.
(9)(a) Amended Administrative Services Agreement between Eaton Vance
Municipals Trust (on behalf of each of its series) and Eaton
Vance Management with attached schedules (including Amended
Schedule A dated September 29, 1995) filed as Exhibit (9)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Transfer Agency Agreement dated June 7, 1989 filed as Exhibit
9(d) to Post-Effective Amendment No. 59 to the Registration
Statement of Eaton Vance Growth Trust (File Nos. 2-22019,
811-1241) and incorporated herein by reference.
(c) Amendment to Transfer Agency Agreement dated February 1, 1993
filed as Exhibit 9(e) to Post-Effective Amendment No. 59 to the
Registration Statement of Eaton Vance Growth Trust (File Nos.
2-22019, 811-1241) and incorporated herein by reference.
(10) Opinion of Counsel dated December 20, 1996 filed herewith.
(11)(a) Consent of Independent Auditors for EV Marathon Alabama
Municipals Fund, EV Marathon Arkansas Municipals Fund, EV
Marathon Georgia Municipals Fund, EV Marathon Kentucky
Municipals Fund, EV Marathon Louisiana Municipals Fund, EV
Marathon Maryland Municipals Fund, EV Marathon Missouri
Municipals Fund, EV Marathon North Carolina Municipals Fund, EV
Marathon Oregon Municipals Fund, EV Marathon South Carolina
Municipals Fund, EV Marathon Tennessee Municipals Fund, and EV
Marathon Virginia Municipals Fund filed herewith.
(b) Consent of Independent Auditors for EV Trational Alabama
Municipals Fund, EV Traditional Arkansas Municipals Fund, EV
Traditional Georgia Municipals Fund, EV Traditional Kentucky
Municipals Fund, EV Traditional Louisiana Municipals Fund, EV
Traditional Maryland Municipals Fund, EV Traditional Missouri
Municipals Fund, EV Traditional North Carolina Municipals Fund,
EV Traditional Oregon Municipals Fund, EV Traditional South
Carolina Municipals Fund, EV Traditional Tennessee Municipals
Fund, and EV Traditional Virginia Municipals Fund filed
herewith.
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15)(a) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust (on behalf of its Classic Series) dated
January 27, 1995 with attached schedules (including Amended
Schedule A dated February 1, 1996) filed as Exhibit (15)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amendment to Amended Distribution Plan for Eaton Vance
Municipals Trust (on behalf of its Classic Series) adopted June
24, 1996 filed as Exhibit (15)(b) to Post-Effective Amendment
No. 61 and incorporated herein by reference.
(c) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust (on behalf of its Marathon series) dated June
19, 1995 with attached schedules (including Amended Schedule A
dated September 29, 1995) filed as Exhibit (15)(b) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(d) Amendment to Amended Distribution Plan for Eaton Vance
Municipals Trust (on behalf of its Marathon Series) adopted
June 24, 1996 filed as Exhibit (15)(d) to Post-Effective
Amendment No. 61 and incorporated herein by reference.
(e) Amended Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust (on behalf of its Traditional series) dated
June 19, 1995 with attached schedules (including Amended
Schedule A dated February 1, 1996) filed as Exhibit (15)(c) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(f) Amendment to Amended Service Plan for Eaton Vance Municipals
Trust (on behalf of its Traditional Series) adopted June 24,
1996 filed as Exhibit (15)(f) to Post-Effective Amendment No.
61 and incorporated herein by reference.
(16) Schedule for Computation of Performance Quotations filed
herewith.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust dated
December 29, 1993 filed as Exhibit (17)(a) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(b) Power of Attorney for Alabama Tax Free Portfolio, Arizona Tax
Free Portfolio, Arkansas Tax Free Portfolio, Colorado Tax Free
Portfolio, Connecticut Tax Free Portfolio, Florida Tax Free
Portfolio, Georgia Tax Free Portfolio, Kentucky Tax Free
Portfolio, Louisiana Tax Free Portfolio, Maryland Tax Free
Portfolio, Massachusetts Tax Free Portfolio, Michigan Tax Free
Portfolio, Minnesota Tax Free Portfolio, Mississippi Tax Free
Portfolio, Missouri Tax Free Portfolio, National Municipals
Portfolio, New Jersey Tax Free Portrfolio, New York Tax Free
Portfolio, North Carolina Tax Free Portfolio, Ohio Tax Free
Portfolio, Oregon Tax Free Portfolio, Pennsylvania Tax Free
Portfolio, Rhode Island Tax Free Portfolio, South Carolina Tax
Free Portfolio, Tennessee Tax Free Portfolio, Texas Tax Free
Portfolio, Virginia Tax Free Portfolio and West Virginia Tax
Free Portfolio dated December 29, 1993 filed as Exhibit (17)(b)
to Post-Effective Amendment No. 55 and incorporated herein by
reference.
(c) Power of Attorney for California Tax Free Portfolio dated June
19, 1995 filed as Exhibit (17)(c) to Post-Effective Amendment
No. 55 and incorporated herein by reference.
(18) Multiple Class Plan for Institutional Shares dated November 18,
1996 filed as Exhibit (18) to Post-Effective Amendment No. 62
and incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest as of November 30, 1996
EV Classic National Municipals Fund 1,065
EV Marathon Alabama Municipals Fund 1,868
EV Marathon Arizona Municipals Fund 2,704
EV Marathon Arkansas Municipals Fund 1,930
EV Marathon California Municipals Fund 6,824
EV Marathon Colorado Municipals Fund 1,083
EV Marathon Connecticut Municipals Fund 4,229
EV Marathon Florida Municipals Fund 11,851
EV Marathon Georgia Municipals Fund 2,476
EV Marathon Kentucky Municipals Fund 3,266
EV Marathon Louisiana Municipals Fund 574
EV Marathon Maryland Municipals Fund 2,872
EV Marathon Massachusetts Municipals Fund 6,420
EV Marathon Michigan Municipals Fund 3,930
EV Marathon Minnesota Municipals Fund 2,270
EV Marathon Mississippi Municipals Fund 602
EV Marathon Missouri Municipals Fund 2,481
EV Marathon National Municipals Fund 40,614
EV Marathon New Jersey Municipals Fund 9,888
EV Marathon New York Municipals Fund 14,024
EV Marathon North Carolina Municipals Fund 4,185
EV Marathon Ohio Municipals Fund 6,914
EV Marathon Oregon Municipals Fund 3,310
EV Marathon Pennsylvania Municipals Fund 12,244
EV Marathon Rhode Island Municipals Fund 800
EV Marathon South Carolina Municipals Fund 1,300
EV Marathon Tennessee Municipals Fund 1,439
EV Marathon Texas Municipals Fund 403
EV Marathon Virginia Municipals Fund 4,551
EV Marathon West Virginia Municipals Fund 1,120
EV Traditional Alabama Municipals Fund 54
EV Traditional Arizona Municipals Fund 48
EV Traditional Arkansas Municipals Fund 34
EV Traditional California Municipals Fund 52
EV Traditional Colorado Municipals Fund 77
EV Traditional Connecticut Municipals Fund 60
EV Traditional Florida Municipals Fund 102
EV Traditional Georgia Municipals Fund 50
EV Traditional Kentucky Municipals Fund 31
EV Traditional Louisiana Municipals Fund 31
EV Traditional Maryland Municipals Fund 51
EV Traditional Massachusetts Municipals Fund 72
EV Traditional Michigan Municipals Fund 37
EV Traditional Minnesota Municipals Fund 71
EV Traditional Mississippi Municipals Fund 28
EV Traditional Missouri Municipals Fund 90
EV Traditional National Municipals Fund 24
EV Traditional New Jersey Municipals Fund 108
EV Traditional New York Municipals Fund 178
EV Traditional North Carolina Municipals Fund 91
EV Traditional Ohio Municipals Fund 51
EV Traditional Oregon Municipals Fund 43
EV Traditional Pennsylvania Municipals Fund 111
EV Traditional Rhode Island Municipals Fund 35
EV Traditional South Carolina Municipals Fund 24
EV Traditional Tennessee Municipals Fund 31
EV Traditional Texas Municipals Fund 8
EV Traditional Virginia Municipals Fund 39
EV Traditional West Virginia Municipals Fund 43
Massachusetts Municipal Bond Portfolio 33
ITEM 27. INDEMNIFICATION
Article IV of the Trust's Amended and Restated Declaration of Trust, dated
January 11, 1993, permits Trustee and officer indemnification by By-law,
contract and vote. Article XI of the By-laws contains indemnification
provisions. Registrant's Trustees and officers are insured under a standard
mutual fund errors and omissions insurance policy covering insured by reason of
negligent errors and omissions committed in their capacities as such.
The distribution agreements of the Trust also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the caption "Investment
Adviser and Administrator" in the Statements of Additional Information, which
information is incorporated herein by reference.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(A) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
<TABLE>
<S> <C>
EV Classic Florida Limited Maturity EV Marathon Maryland Municipals Fund
Municipals Fund EV Marathon Massachusetts Limited Maturity
EV Classic Government Obligations Fund Municipals Fund
EV Classic Greater China Growth Fund EV Marathon Massachusetts Municipals Fund
EV Classic Growth Fund EV Marathon Michigan Limited Maturity
EV Classic High Income Fund Municipals Fund
EV Classic Information Age Fund EV Marathon Michigan Municipals Fund
EV Classic Investors Fund EV Marathon Minnesota Municipals Fund
EV Classic Massachusetts Limited Maturity EV Marathon Mississippi Municipals Fund
Municipals Fund EV Marathon Missouri Municipals Fund
EV Classic National Limited Maturity EV Marathon National Limited Maturity
Municipals Fund Municipals Fund
EV Classic National Municipals Fund EV Marathon National Municipals Fund
EV Classic New York Limited Maturity EV Marathon New Jersey Limited Maturity
Municipals Fund Municipals Fund
EV Classic Senior Floating-Rate Fund EV Marathon New Jersey Municipals Fund
EV Classic Strategic Income Fund EV Marathon New York Limited Maturity
EV Classic Special Equities Fund Municipals Fund
EV Classic Stock Fund EV Marathon New York Municipals Fund
EV Classic Total Return Fund EV Marathon North Carolina Municipals Fund
EV Marathon Alabama Municipals Fund EV Marathon Ohio Limited Maturity
EV Marathon Arizona Municipals Fund Municipals Fund
EV Marathon Arkansas Municipals Fund EV Marathon Ohio Municipals Fund
EV Marathon Asian Small Companies Fund EV Marathon Oregon Municipals Fund
EV Marathon California Limited Maturity EV Marathon Pennsylvania Limited Maturity
Municipals Fund Municipals Fund
EV Marathon California Municipals Fund EV Marathon Pennsylvania Municipals Fund
EV Marathon Colorado Municipals Fund EV Marathon Rhode Island Municipals Fund
EV Marathon Connecticut Limited Maturity EV Marathon Strategic Income Fund
Municipals Fund EV Marathon South Carolina Municipals Fund EV Marathon
Connecticut Municipals Fund EV Marathon Special Equities Fund
EV Marathon Emerging Markets Fund EV Marathon Stock Fund
EV Marathon Florida Insured Municipals Fund EV Marathon Tax-Managed Growth Fund
EV Marathon Florida Limited Maturity EV Marathon Tennessee Municipals Fund
Municipals Fund EV Marathon Texas Municipals Fund
EV Marathon Florida Municipals Fund EV Marathon Total Return Fund
EV Marathon Georgia Municipals Fund EV Marathon Virginia Municipals Fund
EV Marathon Gold & Natural Resources Fund EV Marathon West Virginia Municipals Fund
EV Marathon Government Obligations Fund EV Marathon Worldwide Health Sciences Fund
EV Marathon Greater China Growth Fund EV Traditional Alabama Municipals Fund
EV Marathon Greater India Fund EV Traditional Arizona Municipals Fund
EV Marathon Growth Fund EV Traditional Arkansas Municipals Fund
EV Marathon Hawaii Municipals Fund EV Traditional Asian Small Companies Fund
EV Marathon High Income Fund EV Traditional California Limited Maturity
EV Marathon High Yield Municipals Fund Municipals Fund
EV Marathon Information Age Fund EV Traditional California Municipals Fund
EV Marathon Investors Fund EV Traditional Colorado Municipals Fund
EV Marathon Kansas Municipals Fund EV Traditional Connecticut Limited Maturity
EV Marathon Kentucky Municipals Fund Municipals Fund
EV Marathon Louisiana Municipals Fund EV Traditional Connecticut Municipals Fund
<PAGE>
EV Traditional Emerging Markets Fund EV Traditional New Jersey Limited Maturity
EV Traditional Florida Insured Municipals Fund Municipals Fund
EV Traditional Florida Limited Maturity EV Traditional New Jersey Municipals Fund
Municipals Fund EV Traditional New York Limited Maturity
EV Traditional Florida Municipals Fund Municipals Fund
EV Traditional Georgia Municipals Fund EV Traditional New York Municipals Fund
EV Traditional Government Obligations Fund EV Traditional North Carolina Municipals Fund
EV Traditional Greater China Growth Fund EV Traditional Ohio Limited
EV Traditional Greater India Fund Maturity Municipals Fund
EV Traditional Growth Fund EV Traditional Ohio Municipals Fund
EV Traditional Hawaii Municipals Fund EV Traditional Oregon Municipals Fund
EV Traditional High Yield Municipals Fund EV Traditional Pennsylvania Municipals Fund
Eaton Vance Income Fund of Boston EV Traditional Rhode Island Municipals Fund
EV Traditional Information Age Fund EV Traditional South Carolina Municipals Fund
EV Traditional Investors Fund EV Traditional Special Equities Fund
EV Traditional Kansas Municipals Fund EV Traditional Stock Fund
EV Traditional Kentucky Municipals Fund EV Traditional Tax-Managed Growth Fund
EV Traditional Louisiana Municipals Fund EV Traditional Tennessee Municipals Fund
EV Traditional Maryland Municipals Fund EV Traditional Texas Municipals Fund
EV Traditional Massachusetts Municipals Fund EV Traditional Total Return Fund
EV Traditional Michigan Limited Maturity EV Traditional Virginia Municipals Fund
Municipals Fund EV Traditional West Virginia Municipals Fund
EV Traditional Michigan Municipals Fund EV Traditional Worldwide Health
EV Traditional Minnesota Municipals Fund Sciences Fund, Inc.
EV Traditional Mississippi Municipals Fund Eaton Vance Cash Management Fund
EV Traditional Missouri Municipals Fund Eaton Vance Liquid Assets Fund
Eaton Vance Municipal Bond Fund L.P. Eaton Vance Money Market Fund
EV Traditional National Limited Maturity Eaton Vance Prime Rate Reserves
Municipals Fund Eaton Vance Short-Term Treasury Fund
EV Traditional National Municipals Fund Eaton Vance Tax Free Reserves
Massachusetts Municipal Bond Portfolio
</TABLE>
<PAGE>
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
BUSINESS ADDRESS* WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
------------------ -------------------------- ---------------------
<S> <C> <C>
James B. Hawkes Vice President and Director Vice President and
Trustee
William M. Steul Vice President and Director None
Wharton P. Whitaker President and Director None
Chris Berg Vice President None
H. Day Brigham, Jr. Vice President None
Kate B. Bradshaw Vice President None
Susan W. Bukima Vice President None
Jeffrey W. Butterfield Vice President None
David B. Carle Vice President None
James S. Comforti Vice President None
Raymond Cox Vice President None
Mark P. Doman Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Vice President None
Hugh S. Gilmartin Vice President None
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Thomas P. Luka Vice President None
Timothy D. McCarthy Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Thomas Otis Secretary and Clerk Secretary
George D. Owen II Vice President None
F. Anthony Robinson Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, None
Treasurer and Director
John P. Rynne Vice President None
Kevin Schrader Vice President None
George V.F. Schwab, Jr. Vice President None
Cornelius J. Sullivan Vice President None
David M. Thill Vice President None
Chris Volf Vice President None
Sue Wilder Vice President None
- ----------
*Address is 24 Federal Street, Boston, MA 02110
</TABLE>
<PAGE>
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 89 South Street, Boston,
MA 02111 and its transfer agent, First Data Investor Services Group, 4400
Computer Drive, Westborough, MA 01581-5123, with the exception of certain
corporate documents and portfolio trading documents which are in the possession
and custody, Eaton Vance Management, 24 Federal Street, Boston, MA 02110.
Registrant is informed that all applicable accounts, books and documents
required to be maintained by registered investment advisers are in the custody
and possession of Eaton Vance Management and Boston Management and Research.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the latest annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and the
Commonwealth of Massachusetts, on the 17th day of December, 1996.
EATON VANCE MUNICIPALS TRUST
By /s/THOMAS J. FETTER
-----------------------------------
THOMAS J. FETTER, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Alabama Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
ALABAMA MUNICIPALS PORTFOLIO
By /s/THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Arkansas Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
ARKANSAS MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Georgia Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
GEORGIA MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Kentucky Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
KENTUCKY MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Louisiana Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
LOUISIANA MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Maryland Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
MARYLAND MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Missouri Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
MISSOURI MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
--------------------------------------------------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
North Carolina Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
NORTH CAROLINA MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Oregon Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
OREGON MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
South Carolina Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
SOUTH CAROLINA MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Tennessee Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
TENNESSEE MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
---------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
--------------------------------------------------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Virginia Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 17th day of
December, 1996.
VIRGINIA MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/THOMAS J. FETTER Executive Officer) December 17, 1996
- ------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/JAMES L. O'CONNOR Officer December 17, 1996
- ----------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee December 17, 1996
- ------------------------------------
DONALD R. DWIGHT
/s/JAMES B. HAWKES Trustee December 17, 1996
- ------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee December 17, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee December 17, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee December 17, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee December 17, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this amendment to the
Registration Statement pursuant to General Instructions E of Form N-1A.
<TABLE>
<CAPTION>
PAGE IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
- ---------- ----------- -------------
<S> <C> <C>
(10) Opinion of Counsel dated December 20, 1996.
(11)(a) Consent of Independent Auditors for EV Marathon Alabama
Municipals Fund, EV Marathon Arkansas Municipals Fund, EV
Marathon Georgia Municipals Fund, EV Marathon Kentucky
Municipals Fund, EV Marathon Louisiana Municipals Fund, EV
Marathon Maryland Municipals Fund, EV Marathon Missouri
Municipals Fund, EV Marathon North Carolina Municipals
Fund, EV Marathon Oregon Municipals Fund, EV Marathon South
Carolina Municipals Fund, EV Marathon Tennessee Municipals
Fund, and EV Marathon Virginia Municipals Fund filed
herewith.
(b) Consent of Independent Auditors for EV Trational Alabama Municipals
Fund, EV Traditional Arkansas Municipals Fund, EV Traditional Georgia
Municipals Fund, EV Traditional Kentucky Municipals Fund, EV
Traditional Louisiana Municipals Fund, EV Traditional Maryland
Municipals Fund, EV Traditional Missouri Municipals Fund, EV
Traditional North Carolina Municipals Fund, EV Traditional Oregon
Municipals Fund, EV Traditional South Carolina Municipals Fund, EV
Traditional Tennessee Municipals Fund, and EV Traditional Virginia
Municipals Fund filed herewith.
(16) Schedule for Computation of Performance Quotations.
</TABLE>
<PAGE>
EXHIBIT 99.10
Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617) 482-8260
December 20, 1996
Eaton Vance Municipals Trust
24 Federal Street
Boston, MA 02110
Gentlemen:
Eaton Vance Municipals Trust (the "Trust") is a Massachusetts business
trust created under a Declaration of Trust dated September 30, 1985 executed and
delivered in Boston, Massachusetts and currently operating under an Amended and
Restated Declaration of Trust dated January 11, 1993 (the "Declaration of
Trust"). I am of the opinion that all legal requirements have been complied with
in the creation of the Trust, and that said Declaration of Trust is legal and
valid.
The Trustees of the Trust have the powers set forth in the Declaration
of Trust, subject to the terms, provisions and conditions therein provided. As
provided in the Declaration of Trust, the interest of shareholders is divided
into shares of beneficial interest without par value, and the number of shares
that may be issued is unlimited. The Trustees may from time to time issue and
sell or cause to be issued and sold shares for cash or for property. All such
shares, when so issued, shall be fully paid and nonassessable by the Trust.
By votes duly adopted, the Trustees of the Trust have authorized the
issuance of shares of beneficial interest, without par value. The Trust intends
to register under the Securities Act of 1933, as amended, 10,931,539 of its
shares of beneficial interest with Post-Effective Amendment No. 63 to its
Registration Statement on Form N-1A (the "Amendment") with the Securities and
Exchange Commission.
I have examined originals, or copies, certified or otherwise identified
to my satisfaction, of such certificates, records and other documents as I have
deemed necessary or appropriate for the purpose of this opinion, including the
Declaration of Trust and votes adopted by the Trustees. Based upon the
foregoing, and with respect to Massachusetts law (other than the Massachusetts
Uniform Securities Act), only to the extent that Massachusetts law may be
applicable and without reference to the laws of the other several states or of
the United States of America, I am of the opinion that under existing law:
1. The Trust is a trust with transferable shares of beneficial interest
organized in compliance with the laws of The Commonwealth of Massachusetts, and
the Declaration of Trust is legal and valid under the laws of The Commonwealth
of Massachusetts.
2. Shares of beneficial interest registered by the Amendment may be
legally and validly issued in accordance with the Declaration of Trust upon
receipt by the Trust of payment in compliance with the Declaration of Trust and,
when so issued and sold, will be fully paid and nonassessable by the Trust.
I am a member of the Massachusetts bar, and I hereby consent to the
filing of this opinion with the Securities and Exchange Commission as an exhibit
thereto.
Very truly yours,
/s/ Eric G. Woodbury
Eric G. Woodbury, Esq.
Vice President, Eaton Vance Management
<PAGE>
EXHIBIT (11)(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 63 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Marathon Alabama Municipals Fund, EV Marathon Arkansas
Municipals Fund, EV Marathon Georgia Municipals Fund, EV Marathon Kentucky
Municipals Fund, EV Marathon Louisiana Municipals Fund, EV Marathon Maryland
Municipals Fund, EV Marathon Missouri Municipals Fund, EV Marathon North
Carolina Municipals Fund, EV Marathon Oregon Municipals Fund, EV Marathon South
Carolina Municipals Fund, EV Marathon Tennessee Municipals Fund and EV Marathon
Virginia Municipals Fund of our report dated October 1, 1996 relating to such
Funds, and of our report dated October 1, 1996, relating to Alabama Municipals
Portfolio, Arkansas Municipals Portfolio, Georgia Municipals Portfolio, Kentucky
Municipals Portfolio, Louisiana Municipals Portfolio, Maryland Municipals
Portfolio, Missouri Municipals Portfolio, North Carolina Municipals Portfolio,
Oregon Municipals Portfolio, South Carolina Municipals Portfolio, Tennessee
Municipals Portfolio and Virginia Municipals Portfolio, which reports are
included in the Annual Report to Shareholders for the year ended August 31, 1996
which is incorporated by reference in the Statement of Additional Information,
which is part of such Registration Statement.
We also consent to the reference to our Firm under the heading "The Funds'
Financial Highlights" in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
December 17, 1996
Boston, Massachusetts
<PAGE>
EXHIBIT (11)(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 63 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Traditional Alabama Municipals Fund, EV Traditional
Arkansas Municipals Fund, EV Traditional Georgia Municipals Fund, EV Traditional
Kentucky Municipals Fund, EV Traditional Louisiana Municipals Fund, EV
Traditional Maryland Municipals Fund, EV Traditional Missouri Municipals Fund,
EV Traditional North Carolina Municipals Fund, EV Traditional Oregon Municipals
Fund, EV Traditional South Carolina Municipals Fund, EV Traditional Tennessee
Municipals Fund and EV Traditional Virginia Municipals Fund of our report dated
October 1, 1996 relating to such Funds, and of our report dated October 1, 1996,
relating to Alabama Municipals Portfolio, Arkansas Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana Municipals
Portfolio, Maryland Municipals Portfolio, Missouri Municipals Portfolio, North
Carolina Municipals Portfolio, Oregon Municipals Portfolio, South Carolina
Municipals Portfolio, Tennessee Municipals Portfolio and Virginia Municipals
Portfolio, which reports are included in the Annual Report to Shareholders for
the year ended August 31, 1996 which is incorporated by reference in the
Statement of Additional Information, which is part of such Registration
Statement.
We also consent to the reference to our Firm under the heading "The Funds'
Financial Highlights" in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
December 17, 1996
Boston, Massachusetts
<PAGE>
EXHIBIT 99.16
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON ALABAMA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from May 1, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $1,303.02 $1,283.02 30.30% 6.29% 28.30% 5.91%
1 YEAR ENDED
08/31/96 08/31/95 $1,048.51 $998.51 4.85% 4.85% -0.15% -0.15%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON ALABAMA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $502,549
Plus Dividend Income Earned:
--------
Equal Gross Income: $502,549
Minus Expenses: $95,575
--------
Equal Net Investment Income: $406,974
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 9,773,937
--------
Equal Net Investment Income Earned Per Share: $0.0416
Net Asset Value Per Share 8/31/96: $10.46
30 Day Yield*: 4.82%
Divided by One minus the Tax Rate of 31%: 0.69
--------
Equal Tax Equivalent Yield **: 6.99%
Divided by one minus a tax rate of 34.45%: 0.6555
--------
Equal Tax Equivalent Yield***: 7.35%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0416/$10.46)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Alabama tax rate of 34.45%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON ARKANSAS MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,238.14 $1,208.14 23.81% 5.60% 20.81% 4.94%
1 YEAR ENDED
08/31/96 08/31/95 $1,040.54 $990.83 4.05% 4.05% -0.92% -0.92%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON ARKANSAS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $360,289
Plus Dividend Income Earned:
--------
Equal Gross Income: $360,289
Minus Expenses: $97,306
--------
Equal Net Investment Income: $262,983
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 7,215,919
--------
Equal Net Investment Income Earned Per Share: $0.0364
Net Asset Value Per Share 8/31/96: $10.19
30 Day Yield*: 4.33%
Divided by One minus the Tax Rate of 31%: 0.69
--------
Equal Tax Equivalent Yield **: 6.28%
Divided by one minus a tax rate of 35.83%: 0.6417
--------
Equal Tax Equivalent Yield***: 6.75%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0364/$10.19)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Arkansas tax rate of 35.83%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON GEORGIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 23, 1991 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/23/91 $1,258.14 $1,238.52 25.81% 5.02% 23.85% 4.67%
1 YEAR ENDED
08/31/96 08/31/95 $1,049.06 $999.06 4.91% 4.91% -0.09% -0.09%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON GEORGIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $543,812
Plus Dividend Income Earned:
----------
Equal Gross Income: $543,812
Minus Expenses: $137,095
----------
Equal Net Investment Income: $406,717
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 10,981,462
----------
Equal Net Investment Income Earned Per Share: $0.0370
Net Asset Value Per Share 8/31/96: $9.80
30 Day Yield*: 4.56%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.61%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 7.03%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.037 /$.8)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Georgia tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON KENTUCKY MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 23, 1991 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/23/91 $1,277.39 $1,257.45 27.74% 5.36% 25.74% 5.01%
1 YEAR ENDED
08/31/96 08/31/95 $1,044.52 $994.62 4.45% 4.45% -0.54% -0.54%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON KENTUCKY MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $655,862
Plus Dividend Income Earned:
----------
Equal Gross Income: $655,862
Minus Expenses: $149,811
----------
Equal Net Investment Income: $506,051
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 13,232,571
----------
Equal Net Investment Income Earned Per Share: $0.0382
Net Asset Value Per Share 8/31/96: $9.97
30 Day Yield*: 4.65%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.74%
Divided by one minus a tax rate of 35.14%: 0.6486
----------
Equal Tax Equivalent Yield***: 7.17%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0382/$9.97)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kentucky tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON LOUISIANA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,231.93 $1,202.05 23.19% 5.46% 20.20% 4.81%
1 YEAR ENDED
08/31/96 08/31/95 $1,047.67 $997.77 4.77% 4.77% -0.22% -0.22%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON LOUISIANA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $184,269
Plus Dividend Income Earned:
---------
Equal Gross Income: $184,269
Minus Expenses: $37,408
---------
Equal Net Investment Income: $146,861
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,307,163
---------
Equal Net Investment Income Earned Per Share: $0.0444
Net Asset Value Per Share 8/31/96: $9.96
30 Day Yield*: 5.41%
Divided by One minus the Tax Rate of 31%: 0.69
---------
Equal Tax Equivalent Yield **: 7.84%
Divided by one minus a tax rate of 35.14%: 0.6486
---------
Equal Tax Equivalent Yield***: 8.34%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0444/$9.96)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Louisiana tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON MARYLAND MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from February 3, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 02/03/92 $1,301.15 $1,281.15 30.12% 5.92% 28.12% 5.56%
1 YEAR ENDED
08/31/96 08/31/95 $1,054.40 $1,004.40 5.44% 5.44% 0.44% 0.44%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON MARYLAND MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $545,558
Plus Dividend Income Earned:
----------
Equal Gross Income: $545,558
Minus Expenses: $144,959
----------
Equal Net Investment Income: $400,599
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 10,633,908
----------
Equal Net Investment Income Earned Per Share: $0.0377
Net Asset Value Per Share 8/31/96: $10.30
30 Day Yield*: 4.43%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.41%
Divided by one minus a tax rate of 36.52%: 0.6348
----------
Equal Tax Equivalent Yield***: 6.98%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0377/$10.3)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Maryland tax rate of 36.52%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON MISSOURI MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from May 1, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $1,315.42 $1,295.42 31.54% 6.52% 29.54% 6.14%
1 YEAR ENDED
08/31/96 08/31/95 $1,045.99 $995.99 4.60% 4.60% -0.40% -0.40%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON MISSOURI MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $411,194
Plus Dividend Income Earned:
--------
Equal Gross Income: $411,194
Minus Expenses: $109,183
--------
Equal Net Investment Income: $302,011
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 7,883,272
--------
Equal Net Investment Income Earned Per Share: $0.0383
Net Asset Value Per Share 8/31/96: $10.58
30 Day Yield*: 4.38%
Divided by One minus the Tax Rate of 31%: 0.69
--------
Equal Tax Equivalent Yield **: 6.35%
Divided by one minus a tax rate of 35.14%: 0.6768
--------
Equal Tax Equivalent Yield***: 6.47%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0383/$10.58)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Missouri tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON NORTH CAROLINA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 23, 1991 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/23/91 $1,289.95 $1,270.01 29.00% 5.38% 27.00% 5.04%
1 YEAR ENDED
08/31/96 08/31/95 $1,048.29 $998.29 4.83% 4.83% -0.17% -0.17%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON NORTH CAROLINA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $855,524
Plus Dividend Income Earned:
----------
Equal Gross Income: $855,524
Minus Expenses: $228,956
----------
Equal Net Investment Income: $626,568
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 17,151,758
----------
Equal Net Investment Income Earned Per Share: $0.0365
Net Asset Value Per Share 8/31/96: $10.03
30 Day Yield*: 4.39%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.36%
Divided by one minus a tax rate of 36.35%: 0.6365
----------
Equal Tax Equivalent Yield***: 6.90%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0365/$10.03)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and North Carolina tax rate of 36.35%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON OREGON MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 24, 1991 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/24/91 $1,306.95 $1,286.95 30.70% 5.87% 28.70% 5.53%
1 YEAR ENDED
08/31/96 08/31/95 $1,038.01 $988.35 3.80% 3.80% -1.17% -1.17%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON OREGON MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $631,578
Plus Dividend Income Earned:
----------
Equal Gross Income: $631,578
Minus Expenses: $167,162
----------
Equal Net Investment Income: $464,416
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 12,588,251
----------
Equal Net Investment Income Earned Per Share: $0.0369
Net Asset Value Per Share 8/31/96: $10.24
30 Day Yield*: 4.36%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.32%
Divided by one minus a tax rate of 37.21%: 0.6279
----------
Equal Tax Equivalent Yield***: 6.94%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0369/$10.24)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Oregon tax rate of 37.21%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $1,214.10 $1,184.10 21.41% 5.07% 18.41% 4.40%
1 YEAR ENDED
08/31/96 08/31/95 $1,049.16 $999.16 4.92% 4.92% -0.08% -0.08%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $295,595
Plus Dividend Income Earned:
---------
Equal Gross Income: $295,595
Minus Expenses: $75,690
---------
Equal Net Investment Income: $219,905
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 5,762,023
---------
Equal Net Investment Income Earned Per Share: $0.0382
Net Asset Value Per Share 8/31/96: $10.02
30 Day Yield*: 4.61%
Divided by One minus the Tax Rate of 31%: 0.69
---------
Equal Tax Equivalent Yield **: 6.68%
Divided by one minus a tax rate of 35.83%: 0.6417
---------
Equal Tax Equivalent Yield***: 7.18%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0382/$10.02)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and South Carolina tax rate of 35.83%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON TENNESSEE MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from August 25, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/25/92 $1,255.17 $1,235.17 25.52% 5.82% 23.52% 5.39%
1 YEAR ENDED
08/31/96 08/31/95 $1,051.55 $1,001.55 5.16% 5.16% 0.16% 0.16%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON TENNESSEE MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $269,617
Plus Dividend Income Earned:
---------
Equal Gross Income: $269,617
Minus Expenses: $67,547
---------
Equal Net Investment Income: $202,070
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 5,386,953
---------
Equal Net Investment Income Earned Per Share: $0.0375
Net Asset Value Per Share 8/31/96: $10.15
30 Day Yield*: 4.48%
Divided by One minus the Tax Rate of 31%: 0.69
---------
Equal Tax Equivalent Yield **: 6.49%
Divided by one minus a tax rate of 35.14%: 0.6486
---------
Equal Tax Equivalent Yield***: 6.91%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0375/$10.15)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Tennessee tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON VIRGINIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from July 26, 1991 through August 31, 1996 and for the 1 and 5 year periods ended
August 31, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 08/31/96 ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 07/26/91 $1,351.55 $1,341.55 35.16% 6.08% 34.16% 5.93%
5 YEARS ENDED
08/31/96 08/31/91 $1,338.12 $1,318.12 33.81% 6.00% 31.81% 5.68%
1 YEAR ENDED
08/31/96 08/31/95 $1,046.83 $996.83 4.68% 4.68% -0.32% -0.32%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON VIRGINIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $882,770
Plus Dividend Income Earned:
----------
Equal Gross Income: $882,770
Minus Expenses: $225,349
----------
Equal Net Investment Income: $657,421
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 17,264,255
----------
Equal Net Investment Income Earned Per Share: $0.0381
Net Asset Value Per Share 8/31/96: $10.33
30 Day Yield*: 4.46%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 6.46%
Divided by one minus a tax rate of 34.97%: 0.6503
----------
Equal Tax Equivalent Yield***: 6.86%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0381/$10.33)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Virginia tax rate of 34.97%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL ALABAMA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from May 1, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $962.00 $1,256.04 30.57% 6.34% 25.60% 5.39%
1 YEAR ENDED
08/31/96 08/31/95 $962.51 $1,015.34 5.49% 5.49% 1.53% 1.53%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL ALABAMA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $30,576
Plus Dividend Income Earned:
-------
Equal Gross Income: $30,576
Minus Expenses: $7,649
-------
Equal Net Investment Income: $22,927
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 654,107
-------
Equal Net Investment Income Earned Per Share: $0.0351
Net Asset Value Per Share 8/31/96: $9.91
30 Day Yield*: 4.28%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 6.20%
Divided by one minus a tax rate of 34.45%: 0.6555
-------
Equal Tax Equivalent Yield***: 6.53%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0351/$9.91)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Alabama tax rate of 34.45%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL ARKANSAS MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $962.31 $1,207.98 25.53% 5.97% 20.80% 4.94%
1 YEAR ENDED
08/31/96 08/31/95 $962.86 $1,004.91 4.37% 4.37% 0.49% 0.49%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL ARKANSAS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $4,993
Plus Dividend Income Earned:
-------
Equal Gross Income: $4,993
Minus Expenses: $597
-------
Equal Net Investment Income: $4,396
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 108,956
-------
Equal Net Investment Income Earned Per Share: $0.0403
Net Asset Value Per Share 8/31/96: $9.89
30 Day Yield*: 4.94%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.16%
Divided by one minus a tax rate of 35.83%: 0.6417
-------
Equal Tax Equivalent Yield***: 7.70%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0403/$9.89)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Arkansas tax rate of 35.83%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL GEORGIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 23, 1991 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/23/91 $962.14 $1,207.07 25.46% 4.96% 20.71% 4.09%
1 YEAR ENDED
08/31/96 08/31/95 $962.30 $1,014.53 5.43% 5.43% 1.45% 1.45%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL GEORGIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $7,983
Plus Dividend Income Earned:
-------
Equal Gross Income: $7,983
Minus Expenses: $881
-------
Equal Net Investment Income: $7,102
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 173,788
-------
Equal Net Investment Income Earned Per Share: $0.0409
Net Asset Value Per Share 8/31/96: $9.56
30 Day Yield*: 5.16%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.48%
Divided by one minus a tax rate of 35.14%: 0.6486
-------
Equal Tax Equivalent Yield***: 7.96%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0409/$9.56)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Georgia tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL KENTUCKY MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 23, 1991 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/23/91 $962.78 $1,225.98 27.34% 5.29% 22.60% 4.44%
1 YEAR ENDED
08/31/96 08/31/95 $962.81 $1,010.08 4.91% 4.91% 1.01% 1.01%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL KENTUCKY MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $6,123
Plus Dividend Income Earned:
-------
Equal Gross Income: $6,123
Minus Expenses: $431
-------
Equal Net Investment Income: $5,692
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 134,727
-------
Equal Net Investment Income Earned Per Share: $0.0422
Net Asset Value Per Share 8/31/96: $9.66
30 Day Yield*: 5.31%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.70%
Divided by one minus a tax rate of 35.14%: 0.6486
-------
Equal Tax Equivalent Yield***: 8.19%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0422/$9.66)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kentucky tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL LOUISIANA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $962.73 $1,230.23 27.78% 6.45% 23.02% 5.43%
1 YEAR ENDED
08/31/96 08/31/95 $962.29 $1,013.70 5.34% 5.34% 1.37% 1.37%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL LOUISIANA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $10,542
Plus Dividend Income Earned:
-------
Equal Gross Income: $10,542
Minus Expenses: $607
-------
Equal Net Investment Income: $9,935
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 202,154
-------
Equal Net Investment Income Earned Per Share: $0.0491
Net Asset Value Per Share 8/31/96: $9.79
30 Day Yield*: 6.10%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 8.84%
Divided by one minus a tax rate of 35.14%: 0.6486
-------
Equal Tax Equivalent Yield***: 9.40%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0491/$9.79)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Louisiana tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL MARYLAND MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from February 3, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 02/03/92 $962.44 $1,262.24 31.14% 6.10% 26.22% 5.22%
1 YEAR ENDED
08/31/96 08/31/95 $962.05 $1,016.89 5.70% 5.70% 1.69% 1.69%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL MARYLAND MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $4,585
Plus Dividend Income Earned:
-------
Equal Gross Income: $4,585
Minus Expenses: $586
-------
Equal Net Investment Income: $3,999
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 99,424
-------
Equal Net Investment Income Earned Per Share: $0.0402
Net Asset Value Per Share 8/31/96: $9.80
30 Day Yield*: 4.98%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.22%
Divided by one minus a tax rate of 36.52%: 0.6348
-------
Equal Tax Equivalent Yield***: 7.84%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0402/$9.8)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Maryland tax rate of 36.52%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL MISSOURI MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from May 1, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 05/01/92 $962.46 $1,272.89 32.25% 6.65% 27.29% 5.72%
1 YEAR ENDED
08/31/96 08/31/95 $962.44 $1,012.48 5.20% 5.20% 1.25% 1.25%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL MISSOURI MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $11,843
Plus Dividend Income Earned:
-------
Equal Gross Income: $11,843
Minus Expenses: $1,813
-------
Equal Net Investment Income: $10,030
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 253,586
-------
Equal Net Investment Income Earned Per Share: $0.0396
Net Asset Value Per Share 8/31/96: $9.93
30 Day Yield*: 4.83%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.00%
Divided by one minus a tax rate of 35.14%: 0.6768
-------
Equal Tax Equivalent Yield***: 7.14%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0396/$9.93)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Missouri tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 23, 1991 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/23/91 $962.83 $1,250.87 29.92% 5.53% 25.09% 4.71%
1 YEAR ENDED
08/31/96 08/31/95 $962.65 $1,012.16 5.15% 5.15% 1.22% 1.22%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $82,605
Plus Dividend Income Earned:
--------
Equal Gross Income: $82,605
Minus Expenses: $12,772
--------
Equal Net Investment Income: $69,833
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,783,262
--------
Equal Net Investment Income Earned Per Share: $0.0392
Net Asset Value Per Share 8/31/96: $9.69
30 Day Yield*: 4.91%
Divided by One minus the Tax Rate of 31%: 0.69
--------
Equal Tax Equivalent Yield **: 7.12%
Divided by one minus a tax rate of 36.35%: 0.6365
--------
Equal Tax Equivalent Yield***: 7.71%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0392/$9.69)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and North Carolina tax rate of 36.35%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL OREGON MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from December 24, 1991 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 12/24/91 $962.30 $1,271.30 32.11% 6.12% 27.13% 5.25%
1 YEAR ENDED
08/31/96 08/31/95 $962.29 $1,003.24 4.25% 4.25% 0.32% 0.32%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL OREGON MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $3,505
Plus Dividend Income Earned:
-------
Equal Gross Income: $3,505
Minus Expenses: $632
-------
Equal Net Investment Income: $2,873
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 78,516
-------
Equal Net Investment Income Earned Per Share: $0.0366
Net Asset Value Per Share 8/31/96: $9.74
30 Day Yield*: 4.55%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 6.59%
Divided by one minus a tax rate of 37.21%: 0.6279
-------
Equal Tax Equivalent Yield***: 7.25%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0366/$9.74)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Oregon tax rate of 37.21%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from October 2, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 10/02/92 $962.61 $1,185.40 23.14% 5.45% 18.54% 4.43%
1 YEAR ENDED
08/31/96 08/31/95 $962.21 $1,012.14 5.19% 5.19% 1.21% 1.21%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $4,535
Plus Dividend Income Earned:
-------
Equal Gross Income: $4,535
Minus Expenses: $674
-------
Equal Net Investment Income: $3,861
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 95,712
-------
Equal Net Investment Income Earned Per Share: $0.0403
Net Asset Value Per Share 8/31/96: $9.80
30 Day Yield*: 4.99%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.23%
Divided by one minus a tax rate of 35.83%: 0.6417
-------
Equal Tax Equivalent Yield***: 7.78%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0403/$9.8)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and South Carolina tax rate of 35.83%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL TENNESSEE MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from August 25, 1992 through August 31, 1996 and for the 1 year period ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/25/92 $962.74 $1,215.23 26.22% 5.96% 21.52% 4.97%
1 YEAR ENDED
08/31/96 08/31/95 $962.85 $1,015.93 5.52% 5.52% 1.59% 1.59%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL TENNESSEE MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $6,439
Plus Dividend Income Earned:
-------
Equal Gross Income: $6,439
Minus Expenses: $786
-------
Equal Net Investment Income: $5,653
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 141,561
-------
Equal Net Investment Income Earned Per Share: $0.0399
Net Asset Value Per Share 8/31/96: $9.72
30 Day Yield*: 4.98%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.22%
Divided by one minus a tax rate of 35.14%: 0.6486
-------
Equal Tax Equivalent Yield***: 7.68%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0399/$9.72)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Tennessee tax rate of 35.14%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL VIRGINIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from July 26, 1991 through August 31, 1996 and for the 1 and 5 year periods ended
August 31, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 08/31/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 07/26/91 $962.73 $1,304.93 35.55% 6.14% 30.49% 5.36%
5 YEARS ENDED
08/31/96 08/31/91 $962.20 $1,291.33 34.20% 6.06% 29.13% 5.25%
1 YEAR ENDED
08/31/96 08/31/95 $962.85 $1,011.96 5.10% 5.10% 1.20% 1.20%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL VIRGINIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 8/31/96:
Interest Income Earned: $5,314
Plus Dividend Income Earned:
-------
Equal Gross Income: $5,314
Minus Expenses: $648
-------
Equal Net Investment Income: $4,666
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 116,617
-------
Equal Net Investment Income Earned Per Share: $0.0400
Net Asset Value Per Share 8/31/96: $9.72
30 Day Yield*: 4.99%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.23%
Divided by one minus a tax rate of 34.97%: 0.6503
-------
Equal Tax Equivalent Yield***: 7.67%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.04 9/$72)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Virginia tax rate of 34.97%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> EV MARATHON ALABAMA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 99618
<INVESTMENTS-AT-VALUE> 102293
<RECEIVABLES> 40
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102335
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 643
<TOTAL-LIABILITIES> 643
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102048
<SHARES-COMMON-STOCK> 9722
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 47
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3078)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2675
<NET-ASSETS> 101692
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 5913
<EXPENSES-NET> 1147
<NET-INVESTMENT-INCOME> 4766
<REALIZED-GAINS-CURRENT> 1384
<APPREC-INCREASE-CURRENT> (998)
<NET-CHANGE-FROM-OPS> 5152
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4874)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 392
<NUMBER-OF-SHARES-REDEEMED> 1322
<SHARES-REINVESTED> 242
<NET-CHANGE-IN-ASSETS> (6950)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1154
<AVERAGE-NET-ASSETS> 107224
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> .470
<PER-SHARE-GAIN-APPREC> .030
<PER-SHARE-DIVIDEND> (.480)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> EV MARATHON ARKANSAS MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 72042
<INVESTMENTS-AT-VALUE> 73080
<RECEIVABLES> 59
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73141
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 273
<TOTAL-LIABILITIES> 273
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74506
<SHARES-COMMON-STOCK> 7151
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (6)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2671)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1039
<NET-ASSETS> 72868
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 4220
<EXPENSES-NET> 836
<NET-INVESTMENT-INCOME> 3384
<REALIZED-GAINS-CURRENT> 287
<APPREC-INCREASE-CURRENT> (461)
<NET-CHANGE-FROM-OPS> 3210
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3545)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6)
<NUMBER-OF-SHARES-SOLD> 274
<NUMBER-OF-SHARES-REDEEMED> 1169
<SHARES-REINVESTED> 159
<NET-CHANGE-IN-ASSETS> (1614)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 836
<AVERAGE-NET-ASSETS> 77928
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> .450
<PER-SHARE-GAIN-APPREC> (.038)
<PER-SHARE-DIVIDEND> (.471)
<PER-SHARE-DISTRIBUTIONS> (.001)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> EV MARATHON GEORGIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 104153
<INVESTMENTS-AT-VALUE> 107361
<RECEIVABLES> 12
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 107374
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 381
<TOTAL-LIABILITIES> 381
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111810
<SHARES-COMMON-STOCK> 10905
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 97
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8123)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3209
<NET-ASSETS> 106993
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 6503
<EXPENSES-NET> 1232
<NET-INVESTMENT-INCOME> 5271
<REALIZED-GAINS-CURRENT> 7604
<APPREC-INCREASE-CURRENT> (243)
<NET-CHANGE-FROM-OPS> 5788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5318)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 374
<NUMBER-OF-SHARES-REDEEMED> 1990
<SHARES-REINVESTED> 244
<NET-CHANGE-IN-ASSETS> (14339)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1240
<AVERAGE-NET-ASSETS> 115806
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> .451
<PER-SHARE-GAIN-APPREC> .024
<PER-SHARE-DIVIDEND> (.455)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.81
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> EV MARATHON KENTUCKY MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 128416
<INVESTMENTS-AT-VALUE> 131776
<RECEIVABLES> 72
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 491
<TOTAL-LIABILITIES> 491
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 133182
<SHARES-COMMON-STOCK> 13176
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (198)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4987)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3360
<NET-ASSETS> 131357
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 7637
<EXPENSES-NET> 1476
<NET-INVESTMENT-INCOME> 6161
<REALIZED-GAINS-CURRENT> (1157)
<APPREC-INCREASE-CURRENT> 1295
<NET-CHANGE-FROM-OPS> 6299
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6161)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (155)
<NUMBER-OF-SHARES-SOLD> 561
<NUMBER-OF-SHARES-REDEEMED> 2048
<SHARES-REINVESTED> 332
<NET-CHANGE-IN-ASSETS> (11749)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1478
<AVERAGE-NET-ASSETS> 138512
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .450
<PER-SHARE-GAIN-APPREC> (.009)
<PER-SHARE-DIVIDEND> (.450)
<PER-SHARE-DISTRIBUTIONS> (.011)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 24
<NAME> EV MARATHON LOUISIANA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 32588
<INVESTMENTS-AT-VALUE> 33088
<RECEIVABLES> 8
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33098
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105
<TOTAL-LIABILITIES> 105
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34601
<SHARES-COMMON-STOCK> 3311
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 29
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2137)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 500
<NET-ASSETS> 32993
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1951
<EXPENSES-NET> 363
<NET-INVESTMENT-INCOME> 1588
<REALIZED-GAINS-CURRENT> (338)
<APPREC-INCREASE-CURRENT> 266
<NET-CHANGE-FROM-OPS> 1516
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1600)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 395
<NUMBER-OF-SHARES-REDEEMED> 350
<SHARES-REINVESTED> 77
<NET-CHANGE-IN-ASSETS> 1158
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 365
<AVERAGE-NET-ASSETS> 32950
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .486
<PER-SHARE-GAIN-APPREC> (.016)
<PER-SHARE-DIVIDEND> (.490)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> EV MARATHON MARYLAND MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 108269
<INVESTMENTS-AT-VALUE> 109631
<RECEIVABLES> 53
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 109685
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 441
<TOTAL-LIABILITIES> 441
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110341
<SHARES-COMMON-STOCK> 10608
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 159
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2618)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1362
<NET-ASSETS> 109244
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 6265
<EXPENSES-NET> 1203
<NET-INVESTMENT-INCOME> 5062
<REALIZED-GAINS-CURRENT> 1531
<APPREC-INCREASE-CURRENT> (575)
<NET-CHANGE-FROM-OPS> 6018
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5239)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 813
<NUMBER-OF-SHARES-REDEEMED> 1603
<SHARES-REINVESTED> 272
<NET-CHANGE-IN-ASSETS> (4583)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1206
<AVERAGE-NET-ASSETS> 113545
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> .464
<PER-SHARE-GAIN-APPREC> .086
<PER-SHARE-DIVIDEND> (.480)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.30
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> EV MARATHON MISSOURI MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 80524
<INVESTMENTS-AT-VALUE> 82771
<RECEIVABLES> 7
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 82780
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 395
<TOTAL-LIABILITIES> 395
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82429
<SHARES-COMMON-STOCK> 7839
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (28)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2263)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2247
<NET-ASSETS> 82385
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 4848
<EXPENSES-NET> 937
<NET-INVESTMENT-INCOME> 3911
<REALIZED-GAINS-CURRENT> 1115
<APPREC-INCREASE-CURRENT> (1051)
<NET-CHANGE-FROM-OPS> 3975
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3911)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (28)
<NUMBER-OF-SHARES-SOLD> 356
<NUMBER-OF-SHARES-REDEEMED> 1245
<SHARES-REINVESTED> 186
<NET-CHANGE-IN-ASSETS> (7426)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 937
<AVERAGE-NET-ASSETS> 87506
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .476
<PER-SHARE-GAIN-APPREC> .003
<PER-SHARE-DIVIDEND> (.476)
<PER-SHARE-DISTRIBUTIONS> (.003)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> EV MARATHON NORTH CAROLINA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 162518
<INVESTMENTS-AT-VALUE> 170484
<RECEIVABLES> 39
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 170524
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 636
<TOTAL-LIABILITIES> 636
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 175266
<SHARES-COMMON-STOCK> 17045
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (236)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13108)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7966
<NET-ASSETS> 169888
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 10111
<EXPENSES-NET> 1932
<NET-INVESTMENT-INCOME> 8179
<REALIZED-GAINS-CURRENT> (47)
<APPREC-INCREASE-CURRENT> 745
<NET-CHANGE-FROM-OPS> 8877
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8216)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (233)
<NUMBER-OF-SHARES-SOLD> 703
<NUMBER-OF-SHARES-REDEEMED> 2988
<SHARES-REINVESTED> 413
<NET-CHANGE-IN-ASSETS> (18561)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1945
<AVERAGE-NET-ASSETS> 182865
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> .452
<PER-SHARE-GAIN-APPREC> .026
<PER-SHARE-DIVIDEND> (.455)
<PER-SHARE-DISTRIBUTIONS> (.013)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> EV MARATHON OREGON MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 125870
<INVESTMENTS-AT-VALUE> 129014
<RECEIVABLES> 13
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 129027
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 447
<TOTAL-LIABILITIES> 447
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130696
<SHARES-COMMON-STOCK> 12551
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (35)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5224)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3143
<NET-ASSETS> 128580
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 7515
<EXPENSES-NET> 1477
<NET-INVESTMENT-INCOME> 6038
<REALIZED-GAINS-CURRENT> (927)
<APPREC-INCREASE-CURRENT> 449
<NET-CHANGE-FROM-OPS> 5560
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6124)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (35)
<NUMBER-OF-SHARES-SOLD> 490
<NUMBER-OF-SHARES-REDEEMED> 2346
<SHARES-REINVESTED> 332
<NET-CHANGE-IN-ASSETS> (16476)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1477
<AVERAGE-NET-ASSETS> 139428
<PER-SHARE-NAV-BEGIN> 10.31
<PER-SHARE-NII> .450
<PER-SHARE-GAIN-APPREC> (.061)
<PER-SHARE-DIVIDEND> (.457)
<PER-SHARE-DISTRIBUTIONS> (.002)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 25
<NAME> EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 55571
<INVESTMENTS-AT-VALUE> 57430
<RECEIVABLES> 31
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57464
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247
<TOTAL-LIABILITIES> 247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59355
<SHARES-COMMON-STOCK> 5708
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 140
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4136)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1858
<NET-ASSETS> 57217
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 3414
<EXPENSES-NET> 647
<NET-INVESTMENT-INCOME> 2767
<REALIZED-GAINS-CURRENT> 660
<APPREC-INCREASE-CURRENT> (485)
<NET-CHANGE-FROM-OPS> 2942
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2772)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 462
<NUMBER-OF-SHARES-REDEEMED> 870
<SHARES-REINVESTED> 120
<NET-CHANGE-IN-ASSETS> (2738)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 647
<AVERAGE-NET-ASSETS> 60220
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .467
<PER-SHARE-GAIN-APPREC> .021
<PER-SHARE-DIVIDEND> (.468)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.02
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> EV MARATHON TENNESSEE MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 53878
<INVESTMENTS-AT-VALUE> 54734
<RECEIVABLES> 1
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54737
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 204
<TOTAL-LIABILITIES> 204
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 55642
<SHARES-COMMON-STOCK> 5371
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (6)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1959)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 856
<NET-ASSETS> 54533
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 3136
<EXPENSES-NET> 612
<NET-INVESTMENT-INCOME> 2524
<REALIZED-GAINS-CURRENT> 53
<APPREC-INCREASE-CURRENT> 342
<NET-CHANGE-FROM-OPS> 2919
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2618)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7)
<NUMBER-OF-SHARES-SOLD> 335
<NUMBER-OF-SHARES-REDEEMED> 779
<SHARES-REINVESTED> 130
<NET-CHANGE-IN-ASSETS> (2951)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 612
<AVERAGE-NET-ASSETS> 56672
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> .457
<PER-SHARE-GAIN-APPREC> .059
<PER-SHARE-DIVIDEND> (.475)
<PER-SHARE-DISTRIBUTIONS> (.001)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> EV MARATHON VIRGINIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 169065
<INVESTMENTS-AT-VALUE> 176557
<RECEIVABLES> 12
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 176569
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 650
<TOTAL-LIABILITIES> 650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 178468
<SHARES-COMMON-STOCK> 17143
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (132)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9909)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7492
<NET-ASSETS> 175919
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 10409
<EXPENSES-NET> 1969
<NET-INVESTMENT-INCOME> 8440
<REALIZED-GAINS-CURRENT> 182
<APPREC-INCREASE-CURRENT> 135
<NET-CHANGE-FROM-OPS> 8757
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8440)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (113)
<NUMBER-OF-SHARES-SOLD> 771
<NUMBER-OF-SHARES-REDEEMED> 2519
<SHARES-REINVESTED> 420
<NET-CHANGE-IN-ASSETS> (13617)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1969
<AVERAGE-NET-ASSETS> 186788
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> .471
<PER-SHARE-GAIN-APPREC> .006
<PER-SHARE-DIVIDEND> (.471)
<PER-SHARE-DISTRIBUTIONS> .006
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 47
<NAME> EV TRADITIONAL ALABAMA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-30-1996
<PERIOD-END> AUG-30-1996
<INVESTMENTS-AT-COST> 6126
<INVESTMENTS-AT-VALUE> 6250
<RECEIVABLES> 15
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6271
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41
<TOTAL-LIABILITIES> 41
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6551
<SHARES-COMMON-STOCK> 653
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 23
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (468)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 124
<NET-ASSETS> 6230
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 420
<EXPENSES-NET> 58
<NET-INVESTMENT-INCOME> 362
<REALIZED-GAINS-CURRENT> 103
<APPREC-INCREASE-CURRENT> (8)
<NET-CHANGE-FROM-OPS> 457
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (364)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26
<NUMBER-OF-SHARES-REDEEMED> 382
<SHARES-REINVESTED> 18
<NET-CHANGE-IN-ASSETS> (3196)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74
<AVERAGE-NET-ASSETS> 7636
<PER-SHARE-NAV-BEGIN> 9.51
<PER-SHARE-NII> .462
<PER-SHARE-GAIN-APPREC> .033
<PER-SHARE-DIVIDEND> (.465)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.54
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 52
<NAME> EV TRADITIONAL ARKANSAS MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 1025
<INVESTMENTS-AT-VALUE> 1023
<RECEIVABLES> 17
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1045
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 5
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1066
<SHARES-COMMON-STOCK> 109
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3)
<NET-ASSETS> 1040
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 35
<EXPENSES-NET> 3
<NET-INVESTMENT-INCOME> 32
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (2)
<NET-CHANGE-FROM-OPS> 29
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (33)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63
<NUMBER-OF-SHARES-REDEEMED> 11
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 506
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21
<AVERAGE-NET-ASSETS> 671
<PER-SHARE-NAV-BEGIN> 9.59
<PER-SHARE-NII> .456
<PER-SHARE-GAIN-APPREC> (.053)
<PER-SHARE-DIVIDEND> (.473)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 42
<NAME> EV TRADITIONAL GEORGIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 1626
<INVESTMENTS-AT-VALUE> 1613
<RECEIVABLES> 18
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1637
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 6
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1885
<SHARES-COMMON-STOCK> 177
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (247)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13)
<NET-ASSETS> 1631
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 111
<EXPENSES-NET> 12
<NET-INVESTMENT-INCOME> 99
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 10
<NET-CHANGE-FROM-OPS> 109
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (98)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31
<NUMBER-OF-SHARES-REDEEMED> 131
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> (856)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74
<AVERAGE-NET-ASSETS> 1994
<PER-SHARE-NAV-BEGIN> 9.19
<PER-SHARE-NII> .464
<PER-SHARE-GAIN-APPREC> .017
<PER-SHARE-DIVIDEND> (.461)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.21
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 42
<NAME> EV TRADITIONAL GEORGIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 1626
<INVESTMENTS-AT-VALUE> 1613
<RECEIVABLES> 18
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1637
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 6
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1885
<SHARES-COMMON-STOCK> 177
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (247)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13)
<NET-ASSETS> 1631
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 111
<EXPENSES-NET> 12
<NET-INVESTMENT-INCOME> 99
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 10
<NET-CHANGE-FROM-OPS> 109
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (98)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31
<NUMBER-OF-SHARES-REDEEMED> 131
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> (856)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74
<AVERAGE-NET-ASSETS> 1994
<PER-SHARE-NAV-BEGIN> 9.19
<PER-SHARE-NII> .464
<PER-SHARE-GAIN-APPREC> .017
<PER-SHARE-DIVIDEND> (.461)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.21
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 53
<NAME> EV TRADITIONAL LOUISIANA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 1925
<INVESTMENTS-AT-VALUE> 1961
<RECEIVABLES> 18
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1984
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 6
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2099
<SHARES-COMMON-STOCK> 210
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 9
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (166)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36
<NET-ASSETS> 1978
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 420
<EXPENSES-NET> 58
<NET-INVESTMENT-INCOME> 362
<REALIZED-GAINS-CURRENT> 103
<APPREC-INCREASE-CURRENT> (8)
<NET-CHANGE-FROM-OPS> 457
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29
<NUMBER-OF-SHARES-REDEEMED> 80
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> (407)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33
<AVERAGE-NET-ASSETS> 2214
<PER-SHARE-NAV-BEGIN> 9.44
<PER-SHARE-NII> .497
<PER-SHARE-GAIN-APPREC> (.014)
<PER-SHARE-DIVIDEND> (.503)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.42
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 45
<NAME> EV TRADITIONAL MARYLAND MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 980
<INVESTMENTS-AT-VALUE> 958
<RECEIVABLES> 24
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 987
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 4
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1047
<SHARES-COMMON-STOCK> 104
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (42)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (22)
<NET-ASSETS> 983
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 51
<EXPENSES-NET> 7
<NET-INVESTMENT-INCOME> 44
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 5
<NET-CHANGE-FROM-OPS> 52
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (46)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25
<NUMBER-OF-SHARES-REDEEMED> 25
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 43
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23
<AVERAGE-NET-ASSETS> 940
<PER-SHARE-NAV-BEGIN> 9.38
<PER-SHARE-NII> .446
<PER-SHARE-GAIN-APPREC> .072
<PER-SHARE-DIVIDEND> (.466)
<PER-SHARE-DISTRIBUTIONS> (.002)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.43
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 49
<NAME> EV TRADITIONAL MISSOURI MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 2389
<INVESTMENTS-AT-VALUE> 2392
<RECEIVABLES> 19
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2415
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7
<TOTAL-LIABILITIES> 7
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2553
<SHARES-COMMON-STOCK> 254
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (154)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2
<NET-ASSETS> 2408
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 159
<EXPENSES-NET> 18
<NET-INVESTMENT-INCOME> 141
<REALIZED-GAINS-CURRENT> (13)
<APPREC-INCREASE-CURRENT> 25
<NET-CHANGE-FROM-OPS> 153
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (140)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19
<NUMBER-OF-SHARES-REDEEMED> 111
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> (755)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38
<AVERAGE-NET-ASSETS> 2893
<PER-SHARE-NAV-BEGIN> 9.48
<PER-SHARE-NII> .466
<PER-SHARE-GAIN-APPREC> .010
<PER-SHARE-DIVIDEND> (.466)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.49
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 41
<NAME> EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 16502
<INVESTMENTS-AT-VALUE> 16560
<RECEIVABLES> 17
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16581
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 77
<TOTAL-LIABILITIES> 77
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16963
<SHARES-COMMON-STOCK> 1781
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 9
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (526)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58
<NET-ASSETS> 16504
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 552
<EXPENSES-NET> 47
<NET-INVESTMENT-INCOME> 505
<REALIZED-GAINS-CURRENT> (92)
<APPREC-INCREASE-CURRENT> (2)
<NET-CHANGE-FROM-OPS> 411
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (513)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1256
<NUMBER-OF-SHARES-REDEEMED> 149
<SHARES-REINVESTED> 15
<NET-CHANGE-IN-ASSETS> 10389
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 65
<AVERAGE-NET-ASSETS> 10094
<PER-SHARE-NAV-BEGIN> 9.28
<PER-SHARE-NII> .452
<PER-SHARE-GAIN-APPREC> .011
<PER-SHARE-DIVIDEND> (.473)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.27
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 44
<NAME> EV TRADITIONAL OREGON MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 786
<INVESTMENTS-AT-VALUE> 745
<RECEIVABLES> 19
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 769
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 3
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 918
<SHARES-COMMON-STOCK> 82
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (112)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (41)
<NET-ASSETS> 765
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 45
<EXPENSES-NET> 6
<NET-INVESTMENT-INCOME> 39
<REALIZED-GAINS-CURRENT> (43)
<APPREC-INCREASE-CURRENT> 43
<NET-CHANGE-FROM-OPS> 39
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (41)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17
<NUMBER-OF-SHARES-REDEEMED> 44
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> (233)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39
<AVERAGE-NET-ASSETS> 850
<PER-SHARE-NAV-BEGIN> 9.44
<PER-SHARE-NII> .435
<PER-SHARE-GAIN-APPREC> (.047)
<PER-SHARE-DIVIDEND> (.458)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.37
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 54
<NAME> EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 871
<INVESTMENTS-AT-VALUE> 888
<RECEIVABLES> 15
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 907
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 5
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1063
<SHARES-COMMON-STOCK> 96
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (183)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18
<NET-ASSETS> 902
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 60
<EXPENSES-NET> 8
<NET-INVESTMENT-INCOME> 52
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 17
<NET-CHANGE-FROM-OPS> 68
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (51)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48
<NUMBER-OF-SHARES-REDEEMED> 88
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> (343)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23
<AVERAGE-NET-ASSETS> 1075
<PER-SHARE-NAV-BEGIN> 9.42
<PER-SHARE-NII> .465
<PER-SHARE-GAIN-APPREC> .008
<PER-SHARE-DIVIDEND> (.463)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.43
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 51
<NAME> EV TRADITIONAL TENNESSEE MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 1332
<INVESTMENTS-AT-VALUE> 1332
<RECEIVABLES> 19
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1354
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 4
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1412
<SHARES-COMMON-STOCK> 144
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (61)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1)
<NET-ASSETS> 1350
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 61
<EXPENSES-NET> 7
<NET-INVESTMENT-INCOME> 54
<REALIZED-GAINS-CURRENT> (12)
<APPREC-INCREASE-CURRENT> 19
<NET-CHANGE-FROM-OPS> 61
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (56)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44
<NUMBER-OF-SHARES-REDEEMED> 21
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 265
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26
<AVERAGE-NET-ASSETS> 1122
<PER-SHARE-NAV-BEGIN> 9.33
<PER-SHARE-NII> .460
<PER-SHARE-GAIN-APPREC> .040
<PER-SHARE-DIVIDEND> (.476)
<PER-SHARE-DISTRIBUTIONS> (.004)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.35
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 40
<NAME> EV TRADITIONAL VIRGINIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 1036
<INVESTMENTS-AT-VALUE> 1087
<RECEIVABLES> 17
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1108
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 5
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1198
<SHARES-COMMON-STOCK> 119
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (1)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (145)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51
<NET-ASSETS> 1103
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 74
<EXPENSES-NET> 9
<NET-INVESTMENT-INCOME> 65
<REALIZED-GAINS-CURRENT> (3)
<APPREC-INCREASE-CURRENT> 14
<NET-CHANGE-FROM-OPS> 76
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (68)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35
<NUMBER-OF-SHARES-REDEEMED> 82
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> (385)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26
<AVERAGE-NET-ASSETS> 1353
<PER-SHARE-NAV-BEGIN> 9.33
<PER-SHARE-NII> .463
<PER-SHARE-GAIN-APPREC> (.002)
<PER-SHARE-DIVIDEND> (.478)
<PER-SHARE-DISTRIBUTIONS> (.003)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.31
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 103575
<INVESTMENTS-AT-VALUE> 106273
<RECEIVABLES> 1880
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 429
<TOTAL-ASSETS> 108584
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40
<TOTAL-LIABILITIES> 40
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105744
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2800
<NET-ASSETS> 108544
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6851
<OTHER-INCOME> 0
<EXPENSES-NET> 518
<NET-INVESTMENT-INCOME> 6333
<REALIZED-GAINS-CURRENT> 1488
<APPREC-INCREASE-CURRENT> (1007)
<NET-CHANGE-FROM-OPS> 6814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (9943)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 456
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 565
<AVERAGE-NET-ASSETS> 115229
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 72738
<INVESTMENTS-AT-VALUE> 73706
<RECEIVABLES> 1146
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 74856
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 753
<TOTAL-LIABILITIES> 753
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73067
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1036
<NET-ASSETS> 74103
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4621
<OTHER-INCOME> 0
<EXPENSES-NET> 365
<NET-INVESTMENT-INCOME> 4256
<REALIZED-GAINS-CURRENT> 286
<APPREC-INCREASE-CURRENT> (466)
<NET-CHANGE-FROM-OPS> 4078
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (7432)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 280
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 379
<AVERAGE-NET-ASSETS> 78830
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 105076
<INVESTMENTS-AT-VALUE> 108118
<RECEIVABLES> 2498
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 110619
<PAYABLE-FOR-SECURITIES> 1435
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 211
<TOTAL-LIABILITIES> 1646
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105778
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3195
<NET-ASSETS> 108973
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7146
<OTHER-INCOME> 0
<EXPENSES-NET> 532
<NET-INVESTMENT-INCOME> 6614
<REALIZED-GAINS-CURRENT> 760
<APPREC-INCREASE-CURRENT> (233)
<NET-CHANGE-FROM-OPS> 7141
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (13974)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 473
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 589
<AVERAGE-NET-ASSETS> 118234
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 126102
<INVESTMENTS-AT-VALUE> 129435
<RECEIVABLES> 2254
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 1336
<TOTAL-ASSETS> 133027
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129718
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3300
<NET-ASSETS> 133018
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8382
<OTHER-INCOME> 0
<EXPENSES-NET> 662
<NET-INVESTMENT-INCOME> 7720
<REALIZED-GAINS-CURRENT> (1219)
<APPREC-INCREASE-CURRENT> 1371
<NET-CHANGE-FROM-OPS> 7872
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (12251)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 705
<AVERAGE-NET-ASSETS> 140527
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 34275
<INVESTMENTS-AT-VALUE> 34778
<RECEIVABLES> 665
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 206
<TOTAL-ASSETS> 35653
<PAYABLE-FOR-SECURITIES> 602
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 605
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34513
<SHARES-COMMON-STOCK> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 535
<NET-ASSETS> 35048
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2164
<OTHER-INCOME> 0
<EXPENSES-NET> 83
<NET-INVESTMENT-INCOME> 2081
<REALIZED-GAINS-CURRENT> (353)
<APPREC-INCREASE-CURRENT> 290
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 740
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<PER-SHARE-NAV-END> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
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<OTHER-ITEMS-ASSETS> 515
<TOTAL-ASSETS> 110606
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<OTHER-ITEMS-LIABILITIES> 17
<TOTAL-LIABILITIES> 17
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109249
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
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<ACCUM-APPREC-OR-DEPREC> 1340
<NET-ASSETS> 110589
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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