<PAGE>
EV CLASSIC
MUNICIPAL FUNDS
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EV CLASSIC CONNECTICUT MUNICIPALS FUND
EV CLASSIC NEW JERSEY MUNICIPALS FUND
EV CLASSIC PENNSYLVANIA MUNICIPALS FUND
THE EV CLASSIC MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE STATE
TAXES DESCRIBED UNDER "THE FUNDS' INVESTMENT OBJECTIVES" IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future
reference. A combined Statement of Additional Information dated December 1,
1995 as revised March 29, 1996 for the Funds, as supplemented from time to
time, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This Statement of Additional Information is
available without charge from the Funds' principal underwriter, Eaton Vance
Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street, Boston,
MA 02110 (telephone (800) 225-6265). The Portfolios' investment adviser is
Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
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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.
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PAGE PAGE
Shareholder and Fund Expenses .... 2 How to Buy Fund Shares ........... 14
The Funds' Financial Highlights .. 4 How to Redeem Fund Shares ........ 15
The Funds' Investment Objectives . 5 Reports to Shareholders .......... 16
How the Funds and the Portfolios The Lifetime Investing Account/
Invest their Assets ............ 5 Distribution Options ........... 16
Organization of the Funds and the The Eaton Vance Exchange Privilege 17
Portfolios ..................... 9 Eaton Vance Shareholder Services . 18
Management of the Funds and the Distributions and Taxes .......... 18
Portfolios ..................... 10 Performance Information .......... 19
Distribution Plans ............... 12 Appendix -- State Specific
Valuing Fund Shares .............. 13 Information .................... 20
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PROSPECTUS DATED DECEMBER 1, 1995 AS REVISED MARCH 29, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
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Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge Imposed on Redemption
during the First Year (as a percentage of redemption
proceeds exclusive of all reinvestments and capital
appreciation in the account) 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of
average daily net assets)
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CONNECTICUT NEW JERSEY PENNSYLVANIA
FUND FUND FUND
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Investment Adviser Fee 0.44% 0.47% 0.48%
Rule 12b-1 Distribution (and
Service) Fees 0.95 0.95 0.95
Other Expenses (after expense
reduction) 0.09 0.05 0.05
---- ---- ----
Total Operating Expenses
(after reductions) 1.48% 1.47% 1.48%
==== ==== ====
EXAMPLE
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An investor would pay the following expenses (including a contingent deferred
sales charge in the case of redemption during the first year after purchase)
on a $1,000 investment, assuming (a) 5% annual return and (b) redemption at
the end of each period:
CONNECTICUT NEW JERSEY PENNSYLVANIA
FUND FUND FUND
-----------------------------------------------------------------------------
1 Year $ 25 $ 25 $ 25
3 Years 47 46 47
5 Years 81 80 81
10 Years 177 176 177
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
1 Year $ 15 $ 15 $ 15
3 Years 47 46 47
5 Years 81 80 81
10 Years 177 176 177
NOTES:
The table and Example summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year. Absent an
expense allocation, expenses of the Funds would have been the following
percentage of average daily net assets: Connecticut Fund Other Expenses would
have been 0.66% and Total Operating Expenses would have been 2.05%; New Jersey
Fund Other Expenses would have been 0.67% and Total Operating Expenses would
have been 2.09%; and Pennsylvania Fund Other Expenses would have been 0.64% and
Total Operating Expenses would have been 2.07%.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Trust retained the services of an
investment adviser for the Fund and the Fund's assets were invested directly in
the type of securities being held by its corresponding Portfolio.
The Example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. Federal regulations
require the Example to assume a 5% annual return, but actual return will vary.
For further information regarding the expenses of the Funds and the Portfolios
see "The Funds' Financial Highlights", "Organization of the Funds and the
Portfolios", "Management of the Funds and the Portfolios" and "How to Redeem
Fund Shares". A long-term shareholder in a Fund may pay more than the economic
equivalent of the maximum front-end sales charge permitted by a rule of the
National Association of Securities Dealers, Inc. See "Distribution Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more than
one year prior to redemption, (b) shares acquired through the reinvestment of
dividends and distributions or (c) any appreciation in value of other shares in
the account (see "How to Redeem Fund Shares"), and no such charge is imposed on
exchanges of Fund shares for shares of one or more other funds listed under "The
Eaton Vance Exchange Privilege."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 11.
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".
THE FUNDS' FINANCIAL HIGHLIGHTS
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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, Eaton Vance Distributors, Inc.
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<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------------------
CONNECTICUT FUND NEW JERSEY FUND PENNSYLVANIA FUND
------------------------------- ------------------------------- -------------------------------
1995 1994<F1> 1995 1994<F1> 1995 1994<F1>
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.250 $10.000 $ 9.300 $10.000 $ 9.180 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.431 $ 0.246 $ 0.452 $ 0.276 $ 0.447 $ 0.279
======= ======= ======= ======= ======= =======
Net realized and
unrealized gain (loss)
on investments (0.044) (0.683) 0.004<F3> (0.640) 0.020 (0.766)
------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.387 $(0.437) $ 0.456 $(0.364) $ 0.467 $(0.487)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.431) $(0.246) $(0.452) $(0.276) $(0.447) $(0.279)
In excess of net
investment income<F6> (0.026) (0.067) (0.024) (0.060) (0.020) (0.054)
------- ------- ------- ------- ------- -------
Total distributions $(0.457) $(0.313) $(0.476) $(0.336) $(0.467) $(0.333)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of
year $ 9.180 $ 9.250 $ 9.280 $ 9.300 $ 9.180 $ 9.180
======= ======= ======= ======= ======= =======
TOTAL RETURN<F4> 4.49% (4.53)% 5.20% (3.82)% 5.40% (5.04)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of
period (000 omitted) $ 4,614 $ 3,215 $ 3,307 $ 3,717 $ 2,621 $ 4,702
Ratio of net expenses
to average daily net
assets<F5> 1.48% 1.64%<F1> 1.47% 1.64%<F1> 1.48% 1.66%<F1>
Ratio of net investment
income to average
daily net assets 4.76% 4.07%<F1> 5.01% 4.30%<F1> 5.10% 4.43%<F1>
** For the periods indicated, the operating expenses of the Funds and the Portfolios may reflect an allocation of
expenses to the Administrator and/or Investment Adviser. Had such actions not been taken, net investment income per
share and the ratios would have been:
NET INVESTMENT INCOME
PER SHARE $ 0.379 $ 0.141 $ 0.396 $ 0.184 $ 0.395 $ 0.235
======= ======= ======= ======= ======= =======
RATIOS (As a percentage
of average daily net
assets):
Expenses<F2> 2.05% 3.37%<F1> 2.09% 3.08%<F1> 2.07% 2.36%(p)
Net investment
income 4.19% 2.34%<F1> 4.39% 2.86%<F1> 4.51% 3.73%(p)
<FN>
Footnotes:
<F1> For the Connecticut, New Jersey and Pennsylvania Funds, the Financial Highlights are for the period from the start of
business, December 9, 1993, December 3, 1993 and December 3, 1993, respectively, to July 31, 1994.
<F2> Annualized.
<F3> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the
timing of sales of Fund shares and the amount of the per share realized and unrealized gains and losses at such time.
<F4> Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total r eturn is computed on a non- annualized basis.
<F5> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F6> 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.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
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The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio"). This
investment structure is commonly referred to as a "master/feeder" structure.
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 CLASSIC CONNECTICUT MUNICIPALS FUND (the "Connecticut Fund") seeks to
provide current income exempt from regular federal income tax and Connecticut
State personal income taxes. The Connecticut Fund seeks to meet its objective
by investing its assets in the Connecticut Municipals Portfolio (the
"Connecticut Portfolio").
EV CLASSIC NEW JERSEY MUNICIPALS FUND (the "New Jersey Fund") seeks to provide
current income exempt from regular federal income tax and New Jersey State
personal income taxes. The New Jersey Fund seeks to meet its objective by
investing its assets in the New Jersey Municipals Porfolio (the "New Jersey
Portfolio").
EV CLASSIC PENNSYLVANIA MUNICIPALS FUND (the "Pennsylvania Fund") seeks to
provide current income exempt from regular federal income tax and Pennsylvania
State and local taxes in the form of an investment exempt from Pennsylvania
personal property taxes. The Pennsylvania Fund seeks to meet its objective by
investing in the Pennsylvania Municipals Portfolio (the "Pennsylvania
Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
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EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE
WITH THE FUND'S 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 80%, 75% and 70% of the net assets of the New Jersey Portfolio,
Connecticut Portfolio and Pennsylvania Portfolio, respectively, will normally
be invested in obligations rated at least investment grade at the time of
investment (which are those rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by either Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated, determined
by the Investment Adviser to be of at least investment grade quality. The
balance of each Portfolio's 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. 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 July 31, 1995, the Portfolios had invested in such obligations as follows
(as a percentage of net assets): Connecticut Portfolio (7.5%); New Jersey
Portfolio (18.8%); and Pennsylvania Portfolio (18.2%). At July 31, 1995, the
Portfolios limited their investment in obligations subject to the AMT to not
more than 20% of net assets. The Portfolios are no longer subject to such
limitation. Distributions to corporate investors of certain interest income
may also be subject to the 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 affected by economic developments and by legislation
and other governmental activities in that State. To the extent that a
Portfolio's assets are concentrated in municipal obligations of issuers of a
single State, that Portfolio may be subject to an increased risk of loss. Each
Portfolio may also invest in obligations issued by the governments of Puerto
Rico, the U.S. Virgin Islands and Guam. See the Appendix to this Prospectus
for a description of 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 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 and unrated municipal obligations, the achievement of the Portfolio's
goals is more dependent on the Investment Adviser's ability than would be the
case if the Portfolio were investing in municipal obligations in the higher
rating categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by a Portfolio which
are rated below investment grade but which, subsequent to the assignment of
such rating, are backed by escrow accounts containing U.S. Government
obligations may be determined by the Investment Adviser to be of investment
grade quality for purposes of the Portfolio's investment policies. A Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition, if such retention is considered desirable by the Investment
Adviser; provided, however, that holdings of obligations rated below Baa or
BBB will not exceed 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary
in order to comply with the Portfolio's credit quality limitations. For a
description of municipal obligation ratings, see the Statement of Additional
Information.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline,
the value of securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Changes in the credit quality of the
issuers of municipal obligations held by a Portfolio will affect the principal
value of (and possibly the income earned on) on such obligations. In addition,
the values of such securities are affected by changes in general economic
conditions and business conditions affecting the specific industries of their
issuers. Changes by recognized rating services in their ratings of a security
and in the ability of the issuer to make payments of principal and interest
may also affect the value of a Portfolio's investments. The amount of
information about the financial condition of an issuer of municipal
obligations may not be as extensive as that made available by corporations
whose securities are publicly traded. An investment in shares of a Fund will
not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other
accounts managed by the Investment Adviser and its affiliates, holds a major
portion or all of such securities. Under adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its 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 and distribute
income from zero-coupon bonds on a current basis, even though it does not
receive that income currently in cash. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such
leases is often subject to the appropriation by the appropriate legislative
body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A
SHAREHOLDER VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH
ENUMERATED RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE
INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT
FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE
TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A FUND'S
SHAREHOLDERS OR THE INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE
MAY BE. IF ANY CHANGES WERE MADE IN A FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH
AN INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A
SHAREHOLDER IN THE FUND.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
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EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A
MUTUAL FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the
Trust are responsible for the overall management and supervision of its
affairs. The Trust may issue an unlimited number of shares of beneficial
interest (no par value per share) in one or more series. Each share represents
an equal proportionate beneficial interest in a Fund. When issued and
outstanding, each Fund's shares are fully paid and nonassessable by the Trust
and redeemable as described under "How to Redeem Fund Shares." Shareholders
are entitled to one vote for each full share held. Fractional shares may be
voted proportionately. Shares have no preemptive or conversion rights and are
freely transferable. In the event of the liquidation of a Fund, shareholders
of that Fund are entitled to share pro rata in the net assets available for
distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
Portfolio (e.g., other U.S. and foreign investment companies, and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Portfolio itself is unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
a Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in its
corresponding Portfolio, which is a separate investment company with an
identical investment objective (although the Fund may temporarily hold a de
minimis amount of cash). Therefore, a Fund's interest in the securities owned
by its corresponding Portfolio is indirect. In addition to selling an interest
to its corresponding Fund, a Portfolio may sell interests to other affiliated
and non-affiliated mutual funds or institutional investors. Such investors
will invest in a Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in a Portfolio are not required to sell their shares at the same
public offering price as the corresponding Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in its corresponding
Portfolio. Such differences in returns are also present in other mutual fund
structures, including funds that have multiple classes of shares. For
information regarding the investment objective, policies and restrictions of
the Portfolios, see "The Funds" Investment Objectives'' and "How the Funds and
the Portfolios Invest their Assets". Further information regarding investment
practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets
of the Portfolios, and affords the potential for economies of scale for each
Fund, at least when the assets of its corresponding Portfolio exceed $500
million.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and
the nonfundamental investment policies of each Fund and Portfolio may be
changed by the Trustees of the Trust and the Portfolio without obtaining the
approval of the shareholders of that Fund or the investors in that Portfolio,
as the case may be. Any such change of an investment objective will be
preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of a Fund, those shares may be subject to a contingent deferred sales charge,
as described in "How to Redeem Fund Shares". In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of
the Trust determines that the investment objective of such Portfolio is no
longer consistent with the investment objective of the Fund, such Trustees
would consider what action might be taken, including investing the assets of
such Fund in another pooled investment entity or retaining an investment
adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in a Portfolio may be adversely affected by
the actions of a larger investor in the Portfolio. For example, if a large
investor withdraws from a Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, a Portfolio may hold fewer securities, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured mutual funds which have
large or institutional investors.
Until 1992, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund
industry and, therefore, the Funds may be subject to additional regulations
than historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolios as partnerships for federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever a Fund as an
investor in a Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. A Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in a Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the corresponding Fund to withdraw its investment
in the Portfolio or take other appropriate action. Any such withdrawal could
result in a distribution "in kind" of portfolio securities (as opposed to a
cash distribution from the Portfolio). If securities are distributed, a Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of a Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund
and its corresponding Portfolio, and it is possible that the creation of
separate Boards may be considered. For further information concerning the
Trustees and officers of each of the Trust and the Portfolios, see the
Statement of Additional Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs. 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%
For the fiscal year ended July 31, 1995, each Portfolio paid advisory fees
equivalent to the percentage of average daily net assets stated below.
NET ASSETS AS OF
PORTFOLIO JULY 31, 1995 ADVISORY FEE
-----------------------------------------------------------------------------
Connecticut $195,275,789 0.44%
New Jersey 411,038,422 0.47%
Pennsylvania 502,250,304 0.48%
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
OVER $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton Vance
Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages primarily in investment management,
administration and marketing activities.
Nicole Anderes has acted as the portfolio manager of the Connecticut Portfolio
since January, 1994. She joined Eaton Vance and BMR as a Vice President in
January 1994. Prior to joining Eaton Vance, she was a Vice President and
portfolio manager at Lazard Freres Asset Management (1992-1994) and a Vice
President and Manager -- Municipal Research at Roosevelt & Cross (1978-1992).
Timothy T. Browse has acted as the portfolio manager of the Pennsylvania
Portfolio since December 1, 1995. 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).
Robert B. MacIntosh has acted as the portfolio manager of the New Jersey
Portfolio since it commenced operations. Mr. MacIntosh has been a Vice
President of Eaton Vance since 1991 and of BMR since 1992. Prior to joining
Eaton Vance, he was a portfolio manager at Fidelity Management & Research
Company (1986-1991).
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940
(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 6.25% of the amount received by a Fund for each
share sold and (ii) distribution fees calculated by applying the rate of 1%
over the prime rate then reported in The Wall Street Journal to the
outstanding balance of Uncovered Distribution Charges (as described below) of
the Principal Underwriter. On sales of shares made prior to January 30, 1995,
the Principal Underwriter currently pays monthly sales commissions to a
financial service firm (an "Authorized Firm") in amounts anticipated to be
equivalent to .75%, annualized, of the assets maintained in a Fund by the
customers of such Firm. On sales of shares made on January 30, 1995 and
thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .80% of the purchase price of the
shares sold by such Firm, and (b) monthly sales commissions approximately
equivalent to 1/12 of .75% of the value of shares sold by such Firm and
remaining outstanding for at least one year. The Plan is designed to permit an
investor to purchase Fund shares through an Authorized Firm without incurring
an initial sales charge and at the same time permit the Principal Underwriter
to compensate Authorized Firms and other persons in connection with the sale
of Fund shares.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE
FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, a Fund
accrues daily an amount at the rate of 1/365 of .75% of the Fund's net
assets, and pays such accrued amounts monthly to the Principal Underwriter.
Each Plan requires such accruals to be automatically discontinued during any
period in which there are no outstanding Uncovered Distribution Charges under
the Plan. Uncovered Distribution Charges are calculated daily and, briefly,
are equivalent to all unpaid sales commissions and distribution fees to which
the Principal Underwriter is entitled under a Plan less all contingent
deferred sales charges therefore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under a Fund's
Plan if at any point in time the aggregate amounts of all payments made to the
Principal Underwriter pursuant to a Fund's Plan, including any contingent
deferred sales charges, have exceeded the total expenses theretofore incurred
by such organization in distributing shares of the Fund. Total expenses for
this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would
result in the incurrence and payment of increased distribution fees under the
Plan.
During the fiscal year ended July 31, 1995, each Fund paid or accrued sales
commissions under its Plan equivalent to .75% (annualized) of such Fund's
average daily net assets. As at July 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter on such day calculated under
each Fund's Plan amounted to approximately $346,000 (equivalent to 7.5% of net
assets on such day) in the case of the Connecticut Fund, $295,000 (equivalent to
8.9% of net assets on such day) in the case of the New Jersey Fund, and $474,000
(equivalent to 18.1% of net assets on such day) in the case of the Pennsylvania
Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The Trustees
of the Trust have initially implemented this provision of each Fund's Plan by
authorizing the Fund to make monthly service fee payments to the Principal
Underwriter in amounts not expected to exceed .20% of the Fund's average daily
net assets for each fiscal year. The Fund accrues the service fee daily at the
rate of 1/365 of .20% of the Fund's net assets. On sales of shares made prior
to January 30, 1995, the Principal Underwriter currently makes monthly service
fee payments to an Authorized Firm in amounts anticipated to be equivalent to
.20%, annualized, of the assets maintained in a Fund by the customers of such
Firm. On sales of shares made on January 30, 1995 and thereafter, the
Principal Underwriter currently expects to pay to an Authorized Firm (a) a
service fee (except on exchange transactions and reinvestments) at the time of
sale equal to .20% of the purchase price of the shares sold by such Firm, and
(b) monthly service fees approximately equivalent to 1/12 of .20% of the
value of shares sold by such Firm and remaining outstanding for at least one
year. Each Fund's Plan authorizes the Trustees of the Trust on behalf of the
Fund to increase payments to the Principal Underwriter, Authorized Firms and
other persons from time to time without further action by shareholders of the
Fund, provided that the aggregate amount of payments made to such persons
under the Plan in any fiscal year of the Fund does not exceed .25% of the
Fund's average daily net assets. During the first year after a purchase of
Fund shares, the Principal Underwriter will retain the service fee as
reimbursement for the service fee payment made to the Authorized Firm at the
time of sale. As permitted by the NASD Rule, all service fee payments are made
for personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales commissions and distribution
fees payable by a Fund to the Principal Underwriter, and as such are not
subject to automatic discontinuance when there are no outstanding Uncovered
Distribution Charges of the Principal Underwriter. For the fiscal year ended
July 31, 1995, each Fund paid or accrued service fees under its Plan
equivalent to 0.20% (annualized) of such Fund's average daily net assets for
such period.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell a Fund's shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose
representatives sell or are expected to sell significant amounts of shares. In
addition, the Principal Underwriter may from time to time increase or decrease
the sales commissions payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant
factors, including without limitation the size of a Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares and the amount of Uncovered Distribution Charges of the Principal
Underwriter. Each Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, no Fund is contractually obligated to
continue its Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
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, BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at their net asset value as determined above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold 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 Classic [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, State and local tax
consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's
STAMP program or the New York Stock Exchange's Medallion Signature Program, or
certain banks, savings and loan institutions, credit unions, securities
dealers, securities exchanges, clearing agencies and registered securities
associations as required by a regulation of the Securities and Exchange
Commission and acceptable to First Data Investor Services Group. In addition,
in some cases, good order may require the furnishing of additional documents
such as where shares are registered in the name of a corporation, partnership
or fiduciary.
Within seven days after receipt of a redemption request in good order by First
Data Investor Services Group, a Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the
amount of any applicable contingent deferred sales charge (described below)
and any federal income tax required to be withheld. Although each Fund
normally expects to make payment in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to
pay the redemption price of shares of a Fund, either totally or partially, by
a distribution in kind of readily marketable securities withdrawn by that Fund
from its corresponding Portfolio. The securities so distributed would be
valued pursuant to the Portfolio's valuation procedures. If a shareholder
received a distribution in kind, the shareholder could incur brokerage or
other charges in converting the securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It
is the Authorized Firm's responsibility to transmit promptly repurchase orders
to EVD. Throughout this Prospectus, the word "redemption" is generally meant
to include a repurchase.
If shares were recently purchased, the proceeds of redemption (or repurchase)
will not be sent until the check (including a certified or cashier's check)
received for the shares purchased has cleared. Payment for shares tendered for
redemption may be delayed up to 15 days from the purchase date when the
purchase check has not yet cleared. Redemptions or repurchases may result in a
taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $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 purchased on or after January 30,
1995 and redeemed within the first year of their purchase (except shares
acquired through the reinvestment of distributions) generally will be subject
to a contingent deferred sales charge equal to 1% of the net asset value of
redeemed shares. This contingent deferred sales charge is imposed on any
redemption the amount of which exceeds the aggregate value at the time of
redemption of (a) all shares in the account purchased more than one year prior
to the redemption, (b) all shares in the account acquired through reinvestment
of distributions, and (c) the increase, if any, of value in the other shares
in the account (namely those purchased within the year preceding the
redemption) over the purchase price of such shares. Redemptions are processed
in a manner to maximize the amount of redemption proceeds which will not be
subject to a contingent deferred sales charge. That is, each redemption will
be assumed to have been made first from the exempt amounts referred to in
clauses (a), (b) and (c) above, and second through liquidation of those shares
in the account referred to in clause (c) on a first-in-first-out basis. As
described under "Distribution Plans", the contingent deferred sales charge
will be paid to the Principal Underwriter or a Fund.
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed
under "The Eaton Vance Exchange Privilege," the purchase of Fund shares
acquired in the exchange is deemed to have occurred at the time of the
original purchase of exchanged shares.
No contingent deferred sales charge will be imposed on shares of a Fund which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will also be waived
for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a distribution from a retirement plan
qualified under Section 401, 403(b) or 457 of the Internal Revenue Code of
1986, as amended (the "Code"), or (3) as part of a minimum required
distribution from other tax-sheltered retirement plans.
REPORTS TO SHAREHOLDERS
- ------------------------------------------------------------------------------
EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing federal and State tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS'
TRANSFER AGENT, FIRST DATA INVESTOR SERVICES GROUP, 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 First Data
Investor Services Group.
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 First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA, 02104 (please provide the name of the shareholder, the
Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the
Funds' dividend disbursing agent, First Data Investor Services Group, BOS725,
P.O. Box 1559, Boston, MA 02104. The currently effective option will appear on
each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more
will be reinvested in the account in shares at the then current net asset
value. Furthermore, the distribution option on the account will be
automatically changed to the Share Option until such time as the shareholder
selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account, or to obtain information about the account. The transfer of shares in
a "street name" account to an account with another dealer or to an account
directly with a Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
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 Classic Group of Funds or Eaton Vance Money Market
Fund, which are distributed with a contingent deferred sales charge, on the
basis of the net asset value per share of each fund at the time of the
exchange, provided that such exchange offers are available only in States
where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the
Principal Underwriter. The prospectus for each fund describes its investment
objectives and policies, and shareholders should obtain a prospectus and
consider these objectives and policies carefully before requesting an
exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon redemption of shares
acquired in an exchange, the purchase of shares acquired in one or more
exchanges is deemed to have occurred at the time of the original purchase of
the exchanged shares.
Shares of the other funds in the Eaton Vance Classic Group of Funds (and
shares of Eaton Vance Money Market Fund acquired as the result of an exchange
from an EV Classic Fund) may be exchanged for Fund shares on the basis of the
net asset values per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by First Data Investor Services Group
provided the investor has not disclaimed in writing the use of the privilege.
To effect such exchanges, call First Data Investor Services Group at 800-262-
1122 or, within Massachusetts, 617-573-9403, Monday through Friday, 9:00 a.m.
to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange
must be registered in the same name(s) and with the same address as the shares
being exchanged. Neither the Funds, the Principal Underwriter nor First Data
Investor Services Group 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 First Data Investor Services
Group, BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
dividends are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments
of $50 or more may be made automatically each month or quarter from a
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a contingent deferred sales charge. See "How to
Redeem Fund Shares." A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON
THE REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE
TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND,
provided that the reinvestment is effected within 60 days after such
repurchase or redemption and the privilege has not been used more than once in
the prior 12 months. Shares are sold to a reinvesting shareholder at the next
determined net asset value following timely receipt of a written purchase
order by the Principal Underwriter or by a Fund (or by the Fund's Transfer
Agent). To the extent that any shares of a Fund are sold at a loss and the
proceeds are reinvested in shares of a Fund (or other shares of the Fund are
acquired within the period beginning 30 days before and ending 30 days after
the date of the redemption) some or all of the loss generally will not be
allowed as a tax deduction. Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL
BE DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME
OF DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the twenty-second day of each
month or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may
be considered taxable income if the Fund has taxable income during the
calendar year. Shareholders reinvesting the monthly distribution should treat
the amount of the entire distribution as the tax cost basis of the additional
shares acquired by reason of such reinvestment. Daily distribution crediting
will commence on the day that collected funds for the purchase of Fund shares
are available at the Transfer Agent. Shareholders of a Fund will receive
timely federal income tax information as to the tax-exempt or taxable status
of all distributions made by the Fund during the calendar year. A Fund's net
realized capital gains, if any, consist of the net realized capital gains
allocated to the Fund by its corresponding Portfolio for tax purposes, after
taking into account any available capital loss carryovers; a Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Each Fund intends to qualify as a regulated investment company under the Code
and to satisfy all requirements necessary to be relieved of federal taxes on
income and gains it distributes to shareholders. In satisfying these
requirements, each Fund will treat itself as owning its proportionate share of
each of its corresponding Portfolio's assets and as entitled to the income of
the Portfolio properly attributable to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS
PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR
EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. Distributions are
taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund. Tax-exempt distributions received from a Fund are
includable in the tax base for determining the taxability of social security
and railroad retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. Each Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share (net asset value) of the Fund on the last day
of the period and annualizing the resulting figure. A taxable-equivalent yield
is computed by using the tax-exempt yield figure and dividing by 1 minus the
tax rate. Each Fund's average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price (net asset value) for specified periods ending
with the most recent calendar quarter, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable contingent
deferred sales charge at the end of the period. Each Fund may publish annual
and cumulative total return figures from time to time. Each Fund may also
quote total return for the period prior to commencement of operations which
would reflect the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge.
Each Fund may also publish total return figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take
into account the contingent deferred sales charge would be reduced to the
extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's current yield 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
paid by Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations 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. The Connecticut Portfolio may invest in municipal
obligations of Puerto Rico, the U.S. Virgin Islands and Guam the interest on
which cannot be taxed by any State under federal law. Set forth below is
certain economic and tax information concerning the States in which the
Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there
can be no assurance that particular bond issues may not be adversely affected
by changes in economic, political or other conditions. Unless stated
otherwise, the ratings indicated are for obligations of the State. A State's
political subdivisions may have different ratings which are unrelated to the
ratings assigned to State obligations.
CONNECTICUT. Historically, Connecticut's economic structure has been
concentrated in manufacturing, including a heavy component of defense-related
industries, which increases the State's vulnerability to economic cycles and
to declines in federal government defense spending. More recently,
Connecticut's level of manufacturing activity has declined, but this has been
partially offset by extensive urban development, a large insurance sector,
relocations of corporate headquarters to Connecticut (specifically to
Fairfield County), and the extension of other service sectors. As of June
1995, the unemployment rate in Connecticut on a seasonally adjusted basis was
5.1%, as compared to a rate of 5.6% nationwide.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. The State has about $6 billion of general obligation bonds
outstanding, of which more than half have been issued for general State
purposes. The remaining general obligation bonds were issued for highway
construction, mass transit, and rental housing. Debt indicators have been
rising and are high at $1,850 per capita. Certain Connecticut municipalities
have experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. This could result in declines in the value of their outstanding
obligations, reductions in their ability to pay interest and principal
thereon, and increases in their future borrowing costs.
General obligations of the State of Connecticut are rated AA-, Aa and AA+ by
S&P, Moody's and Fitch, respectively.
CONNECTICUT TAXES. In the opinion of Day, Berry & Howard, special Connecticut
tax counsel to the Connecticut Fund, shareholders of the Connecticut Fund will
not be subject to the Connecticut personal income tax on the Connecticut
taxable income of individuals, trusts, and estates in the case of
distributions received from the Connecticut Fund to the extent that such
distributions qualify as exempt-interest dividends for federal income tax
purposes and are derived from interest on tax-exempt obligations issued by or
on behalf of the State of Connecticut and its political subdivisions or the
authorities, instrumentalities, or districts of any of them, or on tax-exempt
obligations the interest on which Connecticut is prohibited from taxing by
federal law that are issued by the governments of Puerto Rico, the U.S. Virgin
Islands and Guam.
Other distributions from the Connecticut Fund, including dividends
attributable to obligations of issuers in other states and all long-term and
short-term capital gains, will not be exempt from the Connecticut personal
income tax, except that capital gain dividends derived from obligations issued
by or on behalf of the State of Connecticut or its political subdivisions may
not be subject to such tax. Distributions from the Connecticut Fund that
constitute items of tax preference for purposes of the federal alternative
minimum tax will not be subject to the net Connecticut minimum tax applicable
to taxpayers subject to the Connecticut personal income tax and required to
pay the federal alternative minimum tax, to the extent qualifying as exempt-
interest dividends derived from obligations issued by or on behalf of the
State of Connecticut and its political subdivisions or the authorities,
instrumentalities, or districts of any of them, or from obligations the
interest on which Connecticut is prohibited from taxing by federal law that
are issued by the governments of Puerto Rico, the U.S. Virgin Islands and
Guam, but other distributions from the Fund that constitute items of tax
preference for purposes of the federal alternative minimum tax could cause
liability for the net Connecticut minimum tax. The Connecticut Fund will
report annually to its shareholders the percentage and source, on a state-by-
state basis, of interest income received by the Connecticut Fund on municipal
bonds during the preceding year.
Distributions from investment income and capital gains, including exempt-
interest dividends derived from interest that is exempt from Connecticut
personal income tax and federal income tax, will be subject to the Connecticut
Corporation Business Tax if received by a corporation subject to such tax,
except for any portion therof that might qualify for the dividends-received
deduction provided under that tax, and all such distributions may be subject
to state and local taxes in states other than Connecticut.
NEW JERSEY. The fiscal year 1995 budget included total spending of $15.5
billion. However, the proposed fiscal year 1996 budget (for the fiscal period
ending June 30, 1996) includes total spending of $15.987 billion, or a 3.14%
increase over fiscal 1995. In addition, New Jersey has adopted a 10% personal
income tax cut retroactive to January 1, 1995. Furthermore, on June 26, 1995,
the New Jersey Legislature passed an additional 15% reduction to take effect
January 1, 1996. State officials estimate the revenue loss resulting from
these tax cuts at over $1 billion for fiscal 1996. To accommodate the tax cut,
the fiscal 1996 budget would rely on non-recurring revenues and the use of
prior years' surplus. Also a major focus of the spending reductions has been
employer contributions to retiree health care and pension systems, which were
cut by over $863 million in fiscal 1995. There can be no assurance that the
tax cuts will not have an adverse impact on the State's finances and the
demand for municipal bonds in the State.
New Jersey's general obligation debt is rated Aa1, AA+ and AA+ by Moody's, S&P
and Fitch, respectively.
NEW JERSEY TAXES. The New Jersey Fund intends to satisfy New Jersey's
statutory requirements for treatment as a "Qualified Investment Fund." The
Fund has obtained an opinion of its special tax counsel, Wilentz, Goldman &
Spitzer, P.A., that, provided the New Jersey Fund limits its investments to
those described in this Prospectus and otherwise satisfies such statutory
requirements, shareholders of the New Jersey Fund which are individuals,
estates or trusts will not be required to include in their New Jersey gross
income distributions from the New Jersey Fund that are attributable to
interest or gain realized by the New Jersey Fund from obligations the interest
on which is exempt from regular federal income tax, is not a tax preference
item under the federal minimum tax and is exempt from New Jersey State
personal income tax or other obligations statutorily free from New Jersey
taxation. However, with regard to corporate shareholders, such counsel is also
of the opinion that distributions from the New Jersey Fund will not be
excluded from net income and shares of the New Jersey Fund will not be
excluded from investment capital in determining New Jersey corporation
business (franchise) and corporation income taxes for corporate shareholders.
PENNSYLVANIA. Pennsylvania has long had a large representation in the steel,
mining and manufacturing industries and adverse conditions in those or other
significant industries within Pennsylvania may from time to time have a
correspondingly adverse effect on specific issuers within Pennsylvania or on
anticipated revenue to the Commonwealth. In recent years Pennsylvania's
economy has become more diversified with major new sources of growth in the
service sector, including trade, medical and the health services, education
and financial institutions. The unadjusted unemployment rate for Pennsylvania
was 5.5% for August 1995 versus the national rate of 5.6%.
The Governor's fiscal year 1996 budget contained no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending
increased 2.3% over fiscal year 1995 appropriations. The fiscal year 1996
budget included tax reductions of approximately $214.8 million. The State Tax
Stabilization Reserve Fund had a balance at March 31, 1995 of $65.3 million.
The fiscal year 1996 budget projects a $3.2 million fiscal year-end
unappropriated surplus.
Pennsylvania's general obligation debt is rated "AA-" by S&P and Fitch and
"A1" by Moody's.
PENNSYLVANIA TAXES. Interest derived by the Pennsylvania Fund from obligations
which are statutorily free from taxation in Pennsylvania ("Exempt
Obligations") are not taxable on pass through to shareholders for purposes of
the Pennsylvania personal income tax. The term "Exempt Obligations" includes
(i) those obligations issued by the Commonwealth of Pennsylvania and its
political subdivisions, agencies and instrumentalities, the interest from
which is statutorily free from state taxation in the Commonwealth of
Pennsylvania, and (ii) certain qualifying obligations of U.S. territories and
possessions, or U.S. Government obligations. Distributions attributable to
most other sources, including capital gains, will not be exempt from
Pennsylvania personal income tax.
Corporate shareholders that are subject to the Pennsylvania corporate net
income tax will not be subject to corporate net income tax on distributions of
interest made by the Pennsylvania Fund, provided such distributions are
attributable to Exempt Obligations. Distributions of capital gain attributable
to Exempt Obligations are subject to the Pennsylvania corporate net income
tax. An investment in the Pennsylvania Fund is also exempt from the
Pennsylvania Gross Premiums tax.
Shares of the Pennsylvania Fund which are held by individual shareholders who
are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the obligations
held by the Pennsylvania Portfolio consist of Exempt Obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal
property taxes.
For individual shareholders who are residents of the City of Philadelphia,
distributions of interest derived from Exempt Obligations will not be taxable
for purposes of the Philadelphia School District Investment Net Income Tax
("Philadelphia School District Tax"), provided that the Pennsylvania Portfolio
reports to its investors the percentage of Exempt Obligations held by it for
the year. The Pennsylvania Portfolio will report such percentage to its
investors.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly
from fiscal 1984 through fiscal 1990, the rate of this expansion slowed during
fiscal years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Although the Puerto Rico unemployment rate has declined
substantially since 1985, the seasonally adjusted unemployment rate for June,
1995 was approximately 13.9%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, could lead to the loss of Puerto
Rico's lower salaried or labor intensive jobs to Mexico. The federal budget
proposals being currently considered by the U.S. Congress include the
elimination of Section 936, a federal tax credit program credited with
encouraging economic development in Puerto Rico. The fate of Section 936
cannot be determined at this time. There can be no assurance that the
elimination of the credit available under Section 936 will not have a negative
impact on Puerto Rico's economy and the credit quality (and value) of Puerto
Rican bonds.
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 stable outlook on Puerto Rico on April 26, 1994.
<PAGE>
[LOGO]
EATON VANCE MUTUAL FUNDS
EV CLASSIC MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
PROSPECTUS
DECEMBER 1, 1995, AS REVISED MARCH 29, 1996
EV CLASSIC CONNECTICUT MUNICIPALS FUND
EV CLASSIC NEW JERSEY MUNICIPALS FUND
EV CLASSIC PENNSYLVANIA MUNICIPALS FUND
EV CLASSIC
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- ------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-TFC3/96P
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
December 1, 1995 as
revised March 29, 1996
EV CLASSIC MUNICIPAL FUNDS
EV CLASSIC CONNECTICUT MUNICIPALS FUND
EV CLASSIC NEW JERSEY MUNICIPALS FUND
EV CLASSIC PENNSYLVANIA MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Fund's Part II (a "Part II") provides information
solely about a Fund and its corresponding Portfolio. Where appropriate Part I
includes cross-references to the relevant sections of Part II.
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ................ 1
Investment Restrictions ......................................... 8
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 ............................................... 18
Portfolio Security Transactions ................................. 20
Other Information ............................................... 21
Independent Certified Public Accountants ........................ 23
Financial Statements ............................................ 23
Appendix ........................................................ 24
PART II
EV Classic Connecticut Municipals Fund .......................... a-1
EV Classic New Jersey Municipals Fund ........................... b-1
EV Classic Pennsylvania Municipals Fund ......................... c-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information. This Statement of Additional Information is sometimes
referred herein to as the "SAI".
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED DECEMBER 1, 1995 AS REVISED MARCH 29,
1996, AS SUPPLEMENTED FROM TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL
INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH
MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE
"PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I 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 federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adusted current earnings" for purposes of the
federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does not have original issue discount or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de 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 (the
"Territories"). Accordingly, the Portfolio may be adversely affected by local
political and economic conditions and developments within the Territories
affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The June, 1995 unemployment rate was 13.9%.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the federal government. Most federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Internal Revenue Code was amended and provided for two
alternative limitations to the Section 936 credit. The first option will limit
the credit against such income to 40% of the credit allowable under current law,
with a five year phase-in period starting at 60% of the allowable credit. The
second option is a wage and depreciation based credit. The reduction of the tax
benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that these modifications
will not lead to a weakened economy, a lower rating on Puerto Rico's debt or
lower prices for Puerto Rican bonds that may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. Puerto Ricans voted to retain Commonwealth
status, leaving intact the current relationship with the federal government.
There can be no assurance that the statehood issue will not be brought to a vote
in the future. A successful statehood vote in Puerto Rico would then require
ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas was hit by a hurricane and sustained extensive damage. The
longer term impact on the tourism industry is not yet known. There can be no
assurances that the market for USVI bonds will not be affected. In general,
hurricanes and civil unrest have and will continue to have an adverse affect on
the tourism industry.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI experience a budget deficit in fiscal
years 1989 and 1990: in 1989 due to wage settlements with the unionized
government employees, and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam is
expected to benefit from the closure of the Subic Bay Naval Base and the Clark
Air Force Base in the Philippines. The Naval Air Station, one of several U.S.
military facilities on the island, has been slated for closure by the Defense
Base Closure and Realignment Committee; however, the administration plans to use
these facilities to expand the island's commercial airport. Guam is also heavily
reliant on tourists, particularly the Japanese. For 1994, the financial position
of Guam was weakened as it incurred an unaudited General Fund operating deficit.
The administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this 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. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-issued
basis it records the transaction and reflects the value of the security in
determining its net asset value. Securities purchased on a when-issued basis and
the securities held by the Portfolio are subject to changes in value based upon
the perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e. appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased securities
on a when- issued basis, there will be greater fluctuations in the Portfolio's
net asset value than if it solely set aside cash to pay for when-issued
securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940, as amended, (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. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. Longer term fixed-rate bonds
may give the holder a right to request redemption at certain times (often
annually after the lapse of an intermediate term). These bonds are more
defensive than conventional long term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, because the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Since this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Commission, such loans are required to be secured
continuously by collateral in cash, cash equivalents or U.S. Government
securities held by the Portfolio's custodian and maintained on a current basis
at an amount at least equal to the market value of the securities loaned, which
will be marked to market daily. Cash equivalents include short-term municipal
obligations as well as taxable certificates of deposit, commercial paper and
other short-term money market instruments. The Portfolio would have the right to
call a loan and obtain the securities loaned at any time on up to five business
days' notice. During the existence of a loan, the Portfolio will continue to
receive the equivalent of the interest paid by the issuer on the securities
loaned and will also receive a fee, or all or a portion of the interest on
investment of the collateral, if any. However, the Portfolio may pay lending
fees to such borrowers. The Portfolio would not have the right to vote any
securities having voting rights during the existence of the loan, but would call
the loan in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks of
delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the Portfolio's total assets. The
Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS 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 Internal Revenue Code for maintaining qualification
of the Fund as a regulated investment company for federal income tax purposes
(see "Taxes").
Transactions using 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, receivables and short-term debt 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, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding futures contract or option is open, unless
they are replaced with other appropriate assets. As a result, the commitment of
a large portion of the Portfolio's assets to cover or segregated accounts 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, which as used in this SAI means
the lesser of (a) 67% of the outstanding voting securities of the Portfolio
present or represented by proxy at a meeting if the holders of more than 50% of
the outstanding voting securities of the Portfolio are present or represented at
the meeting or (b) more than 50% of the outstanding voting securities of the
Portfolio. The term "voting securities" as used in this paragraph has the same
meaning as in the 1940 Act. Whenever the Trust is requested to vote on a change
in the fundamental investment restrictions of the Portfolio (or the Portfolio's
80% investment policy with respect to State obligations described in the Fund's
current Prospectus), the Trust will hold a meeting of Fund shareholders and will
cast its vote as instructed by the shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short and unless not more than
25% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund will make such sales only for the purpose
of deferring realization of gain or loss for federal income tax purposes); (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; (d) purchase or retain in its portfolio
any securities issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the Trust or the Portfolio or is a
member, officer, director or trustee of any investment adviser of the Trust or
the Portfolio, if after the purchase of the securities of such issuer by the
Fund or the Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities or both (all taken at market value) of
such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); or (e) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), 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 (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
SAMUEL L. HAYES, III (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 (60), 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 (69), Trustee
Director, Fiduciary Company Incorporated, Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (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 (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March
22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary on March
27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Woodubur 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. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the Portfolio in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee. Neither the Portfolio nor
the Fund 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.
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 and tax-free U.S.
government and corporate bonds. Lloyd George Management, an investment
management firm based in Hong Kong, has advised Eaton Vance's international
equity funds since 1992. Lloyd George's staff includes 11 highly qualified
investment professionals who manage $U.S. 1.3 billion. 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.
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 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The following persons manage one or more of the Eaton Vance
tax-free portfolios. For the identity of the Portfolio's portfolio manager, see
the Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance Management and the
portfolio manager of single-state, tax-exempt funds in five states: Hawaii,
Louisiana, Massachusetts, 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.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part
II.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others. The Agreement also
provides that BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under that Agreement,
in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust, which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of February
29, 1996, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders are
officers of the Trust and/or the Portfolio and are also members of the BMR,
Eaton Vance and EV organizations. BMR will receive the fees paid under the
Investment Advisory Agreement.
EVC owns all of the stock of 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, Investors Bank & Trust Company. It is Eaton Vance's opinion that
the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between the
Fund or the Portfolio and such banks.
CUSTODIAN
IBT, 89 South Street, Boston, Massachusetts, acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund, and computes the
daily net asset value of interests in the Portfolio and the net asset value of
shares of the Fund. In such capacity it attends to details in connection with
the sale, exchange, substitution, transfer or other dealings with the
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund and Portfolio net assets and a portion of the
fee relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day, U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. Landon T. Clay, a Director of EVC and an
officer, Trustee or Director of other 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 1940 Act. For the custody fees that the
Portfolio and the Fund paid to IBT, see "Fees and Expenses" in the Fund's Part
II.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal plan accounts will be credited at net asset value as
of the record date for each distribution. Continued withdrawals in excess of
current income will eventually use up principal, particularly in a period of
declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) will have to be deposited with the
Transfer Agent. A shareholder may not have a withdrawal plan in effect at the
same time he or she has authorized Bank Automated Investing or is otherwise
making regular purchases of Fund shares. The shareholder, the Transfer Agent or
the Principal Underwriter will be able to terminate the withdrawal plan at any
time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transaction prices for most municipal obligations held by the Portfolio, and
such obligations, including those purchased on a when- issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by the Trustees of the Portfolio. The Fund and
the Portfolio will be closed for business and will not price their respective
shares or interests on the following business holidays: New Year's Day,
Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period and a complete
redemption of the investment and, if applicable, the deduction of the contingent
deferred sales charge at the end of the period. For 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 (net asset value) per share on the last day of the period
and annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for the
period with the resulting number being divided by the average daily number of
Fund shares outstanding and entitled to receive dividends during the period.
This yield figure does not reflect the deduction of the contingent deferred
sales charge imposed on certain redemptions of shares within one year of their
purchase. See "How to Redeem Fund Shares" in the Prospectus. A
taxable-equivalent yield is computed by dividing the tax-exempt yield by 1 minus
a stated rate. For the yield and taxable-equivalent yield of the Fund, see
"Performance Information" in the Fund's Part II.
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. See "Distributions and Taxes" in the Fund's
current Prospectus. For the Fund's distribution rate and effective distribution
rate, see "Performance Information" in the Fund's Part II.
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, Inc., CDA/Wiesenberger or Morningstar, Inc.). 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.
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.
Information, charts and illustrations relating to inflation and the effects
of inflation on the dollar may be included in advertisements and other material
furnished to present and prospective shareholders. For example, after 10 years,
the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465 and
$12,100, if the annual rates of inflation during such period were 4%, 5%, 6% and
7%, respectively. (To calculate the purchasing power, the value at the end of
each year is reduced by the above inflation rates for 10 consecutive years.)
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 taxable
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 in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze."
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated, and intends to qualify each
year, as a regulated investment company ("RIC") under the Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Fund intends to satisfy
certain requirements relating to sources of its income and diversification of
its assets and to distribute its net investment income (including tax-exempt
income) and net realized capital gains in accordance with the timing
requirements imposed by the Code, so as to avoid any federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended July 31, 1995
(see the Notes to the Financial Statements incorporated by reference in this
SAI). Because the Fund invests its assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for the Fund to satisfy them. The Portfolio will allocate
at least annually among its investors, including the Fund, the Portfolio's net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the Fund
will be deemed (i) to own its proportionate share of each of the assets of the
Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
federal income tax returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when- issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax exempt interest earned by
the Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising are borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under Federal and state securities laws
are borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Fund's Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding voting securities of the Fund or on six
months' notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund has authorized the Principal Underwriter to act as its
agent in repurchasing shares at the rate of $2.50 for each repurchase
transaction handled by the Principal Underwriter. The Principal Underwriter
estimates that the expenses incurred by it in acting as repurchase agent for the
Fund will exceed the amounts paid therefor by the Fund. For the amount paid by
the Fund to the Principal Underwriter for acting as repurchase agent, see "Fees
and Expenses" in the Fund's Part II.
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 to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of such a liability under accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges therefore paid or payable to the Principal Underwriter
will be subtracted from such distribution charges; if the result of such
subtraction is positive, a distribution fee (computed at 1% over the prime rate
then reported in The Wall Street Journal) will be computed on such amount and
added thereto, with the resulting sum constituting the amount of outstanding
Uncovered Distribution Charges with respect to such day. The amount of
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated on any day does not constitute a liability recorded on the financial
statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Classic Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan. (For shares sold prior to January 30, 1995,
Plan payments are as follows: the Principal Underwriter pays monthly sales
commissions and service fee payments to Authorized Firms equivalent to
approximately .75% and .20%, respectively, annualized of the assets maintained
in the Fund by their customers beginning at the time of sale. No payments were
made at the time of sale and there is no contingent deferred sales charge.)
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal Underwriter
and service fees to the Principal Underwriter and Authorized Firms which may be
equivalent, on an aggregate basis during any fiscal year of the Fund, to .95% of
the Fund's average daily net assets for such year. For the sales commission and
service fee payments made by the Fund and the outstanding Uncovered Distribution
Charges of the Principal Underwriter, see "Fees and Expenses -- Distribution
Plan" in the Fund's Part II. The Fund believes that the combined rate of all
these payments may be higher than the rate of payments made under distribution
plans adopted by other investment companies pursuant to Rule 12b-1. Although the
Principal Underwriter will use its own funds (which may be borrowed from banks)
to pay sales commissions at the time of sale, it is anticipated that the Eaton
Vance organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from the sale of Fund shares and through the
amounts paid to the Principal Underwriter, including contingent deferred sales
charges, pursuant to the Plan. The Eaton Vance organization may be considered to
have realized a profit under the Plan if at any point in time the aggregate
amounts therefore received by the Principal Underwriter pursuant to the Plan and
from contingent deferred sales charges have exceeded the total expenses
theretofore incurred by such organization in distributing shares of the Fund.
Total expenses for this purpose will include an allocable portion of the
overhead costs of such organization and its branch offices, which costs will
include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and supplies,
literature and sales aids, interest expense, data processing fees, consulting
and temporary help costs, insurance, taxes other than income taxes, legal and
auditing expense and other miscellaneous overhead items. Overhead is calculated
and allocated for such purpose by the Eaton Vance organization in a manner
deemed equitable to the Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Trust who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of
the Trustees then in office, and the Distribution Agreement contains a similar
provision. The Plan and Distribution Agreement may be terminated at any time by
a vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund. The provisions of the Plan
relating to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Under the Plan the President
or a Vice President of the Trust shall provide to the Trustees for their review,
and the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which have benefited and will continue to benefit the Fund and its
shareholders. Payments for sales commissions and distribution fees made to the
Principal Underwriter under the Plan will compensate the Principal Underwriter
for its services and expenses in distributing shares of the Fund. Service fee
payments made to the Principal Underwriter and Authorized Firms under the Plan
provide incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Portfolio from
time to time, it is the opinion of the Trustees of the Trust and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II.
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.
The Trust is organized as a Massachusetts business trust. As permitted by
Massachusetts law, there will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees of the Trust holding office have been elected by shareholders.
In such an event the Trustees then in office will call a shareholders' meeting
for the election of Trustees. Except for the foregoing circumstances and unless
removed by action of the shareholders in accordance with the Trust's by-laws,
the Trustees shall continue to hold office and may appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this SAI 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 Fund's most recent Annual Report accompanies this
SAI.
<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>
[LOGO] EV CLASSIC MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1995, AS REVISED MARCH 29, 1996
EV CLASSIC CONNECTICUT MUNICIPALS FUND
EV CLASSIC NEW JERSEY MUNICIPALS FUND
EV CLASSIC PENNSYLVANIA MUNICIPALS FUND
EV CLASSIC
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-TFC3/96SAI
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC CONNECTICUT MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Connecticut State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Connecticut Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Connecticut considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Connecticut issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Connecticut issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Although the manufacturing sector has traditionally been of prime economic
importance to Connecticut, the non-manufacturing sector of employment (primarily
aircraft engines, helicopters and submarines) now dominate the State's economy.
Approximately 82% of the State's non-agricultural employment is in the
non-manufacturing sector, with 30% of the total in the service sector, 22% in
the wholesale and retail trade sector, and 14% in the government sector.
Defense-related business plays an important role in the Connecticut economy, and
defense awards to Connecticut have traditionally been among the highest in the
nation on a per capita basis. However, in recent years the federal government
has reduced defense-related spending which has had an adverse impact on the
Connecticut economy.
As of June 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 5.4%, compared to 5.6% for the nation. Between June 1994 and
June 1995, the State lost 1,700 non-farm jobs, with gains in the services and
construction sectors being offset by losses in the manufacturing (durable
goods), finance, insurance and real estate sectors of the economy. The State's
economy is beginning a slow recovery, constrained by military spending cuts and
cost containment pressures in the insurance and biomedical industries. The full
economic impact of continued corporate downsizing in the defense and insurance
industries may not be fully realized.
The State derives over 70% of its revenues from taxes imposed by the State.
The two major taxes have been the sales and use tax and the corporation business
tax, each of which is sensitive to changes in the level of economic activity in
the State, but the Connecticut personal income tax on individuals, trusts, and
estates enacted in 1991 is expected to supersede them in importance. In order to
promote economic stability and provide a positive business climate, several tax
changes were adopted during the 1993 legislative session. Among the most
significant changes were the changes to the Corporation Business Tax -- a 4 year
gradual rate reduction to 11.25% beginning January 1, 1995; 11% beginning
January 1, 1996; 10.5% beginning January 1, 1997 and 10% beginning January 1,
1998.
During fiscal 1991-92, the State issued $965.7 million of Economic Recovery
Notes, of which $455.6 million remained outstanding as of March, 1995. The State
ended the 1992-93 fiscal year with a $113.5 million General Fund operating
surplus and a $19.7 million General Fund surplus for the 1993- 94 fiscal year.
The estimated surplus at June 1995 for the General Fund is $74.5 million, and
the estimated surplus for the Transportation Fund is $57.9 million.
The State, its officers and employees are defendants in numerous lawsuits.
According to the State Attorney General's Office, an adverse decision in any of
the cases summarized herein could materially affect the State's financial
position: (i) an action to enforce the spending cap provision of the State's
constitution by seeking to require that the General Assembly define certain
terms used therein and to enjoin certain increases in "general budget
expenditures" until this is done; (ii) litigation on behalf of black and
hispanic school children in the City of Hartford seeking "integrated education"
within the greater Hartford metropolitan area; (iii) litigation involving claims
by Indian tribes to less than 1/10 of 1% of the State's land area; (iv)
litigation challenging the State's method of financing elementary and secondary
public schools on the grounds that it denies equal access to education; (v) an
action in which two retarded persons seek placement outside a State hospital,
new programs, and damages on behalf of themselves and all mentally retarded
patients at the hospital; (vi) litigation involving claims for refunds of taxes
by several cable television companies; (vii) an action on behalf of all persons
with retardation or traumatic brain injury, claiming that their constitutional
rights are violated by placement in State hospitals alleged not to provide
adequate treatment and training, and seeking placement in community residential
settings with appropriate support services; (viii) an action by the Connecticut
Hospital Association and 33 hospitals seeking to require the State to reimburse
hospitals for in-patient medical services on a more favorable basis; (ix) a
class action by the Connecticut Criminal Defense Lawyers Association claiming a
campaign of illegal surveillance activity and seeking damages and injunctive
relief; (x) two actions for monetary damages brought by a former patient at a
State mental hospital stemming from an attempted suicide that left her
brain-damaged; (xi) an action challenging the validity of the State's imposition
of surcharges on hospital charges to finance certain uncompensated care costs
incurred by hospitals; and (xii) an action challenging the validity of the
State's imposition of gross earnings taxes on hospital revenues to finance
certain uncompensated care costs.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $195,275,789. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$835,605 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $635,227 (equivalent to 0.42% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $331,388 (equivalent to 0.40%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the period
from the start of business, December 9, 1993, to the fiscal year ended July 31,
1994, $22,099 and $18,157, respectively, of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's initial
sole shareholder (Eaton Vance) and by the Board of Trustees of the Trust, as
required by Rule 12b-1. During the fiscal year ended July 31, 1995, the
Principal Underwriter paid to Authorized Firms sales commissions of $27,355 on
sales of Fund shares. During the same period, the Fund paid sales commission
payments under the Plan to the Principal Underwriter aggregating $28,944. Such
payments reduced Uncovered Distribution Charges. During such period, no
contingent deferred sales charges were paid to the Principal Underwriter. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $346,000 (which
amount was equivalent to 7.5% of the Fund's net assets on such date). During the
fiscal year ended July 31, 1995, the Fund paid service fee payments under the
Plan aggregating $7,696, of which $7,294 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $95 for repurchase transactions handled by the Principal Underwriter
(being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $3,449 and the
Portfolio paid IBT $48,135.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994,
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight ............. $0 $2,096(2) $135,000(4)
Samuel L. Hayes, III ......... 0 2,123(3) 150,000(5)
Norton H. Reamer ............. 0 2,133 135,000
John L. Thorndike ............ 0 2,227 140,000
Jack L. Treynor .............. 0 2,196 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $525 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (34) is a Vice President of
the Portfolio. Ms. Anderes has served as a Vice President of the Portfolio since
June 19, 1995. Ms. Anderes has been a Vice President of BMR and Eaton Vance
since 1994 and is an officer of various investment companies managed by Eaton
Vance or BMR. Prior to joining Eaton Vance, Ms. Anderes was Vice President and
portfolio manager, Lazard Freres Asset Management (1992-1994) and Vice President
and Manager -- Municipal Research, Roosevelt & Cross (1978- 1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from May 1, 1992 through July
31, 1995 and for the one year period ended July 31, 1995. The total return for
the period prior to the Fund's commencement of operations on December 9, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund contingent deferred sales charge ("CDSC"). Total
return for this time period has not been adjusted to reflect the Fund's
distribution and/or service fees and certain other expenses. If such adjustments
were made, the performance would have been lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING DEDUCTING DEDUCTING THE CDSC DEDUCTING THE CDSC*
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 5/1/92 $1,000 $1,196.15 $1,196.15 19.62% 5.67% 19.62% 5.67%
1 Year
Ended
7/31/95** 7/31/94 $1,000 $1,044.87 $1,034.95 4.49% 4.49% 3.49% 3.49%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
*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.
</TABLE>
For the thirty-day period ended July 31, 1995, the yield of the Fund was
4.57%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.57% would be 6.94%, assuming a
combined federal and State tax rate of 34.11%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.77%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.88%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, People's Securities, Inc., Bridgeport, CT and Merrill Lynch,
Pierce, Fenner & Smith, Inc., Jacksonville, FL were the record owners of
approximately 9.1%, and 8.1%, respectively, of the outstanding shares, which
were held on behalf of their customers who are the beneficial owners of such
shares, and as to which they have voting power under certain limited
circumstances. In addition, as of such date, the following shareholder owned
beneficially and of record the percentage of outstanding shares of the Fund
indicated after the name: Raymond James & Associates, Inc., FAO Diane & Thom
Santa Barbara & Anne E. MacKinnel TT 12/23/92, Branford, CT (21.9%). To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Connecticut Tax Free Fund to EV
Classic Connecticut Municipals Fund on December 1, 1995.
<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
Connecticut State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND CONNECTICUT STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- --------------------- CT STATE ---------------------------------------------------------------
(TAXABLE INCOME*) 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 18.25% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 58,151 - $121,300 $ 96,901 - $147,700 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$121,301 - $263,750 $147,701 - $263,750 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $263,750 Over $263,750 42.32 6.93 7.80 8.67 9.54 10.40 11.27 12.14
<FN>
*Net amount subject to federal and Connecticut personal income tax after deductions and exemptions.
+The combined federal and Connecticut tax brackets are calculated using the highest Connecticut tax rate within each bracket,
reduced by available tax credits. Taxpayers with taxable income within these brackets may have a lower combined tax bracket
and taxable equivalent yield than indicated above. Tax credits reduce the effective Connecticut tax rate for single filers
with taxable income up to $52,500 and joint filers up to $100,500. The combined tax brackets assume that Connecticut taxes
are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their federal income tax
return will have a higher combined bracket and higher taxable equivalent yield than those indicated above. The applicable
federal tax rates within the brackets 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 Connecticut 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 Connecticut personal
income taxes, other income received by the Portfolio and allocated to the Fund may be taxable. The table does not take into
account state or local taxes, if any, payable on Fund distributions except for Connecticut personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax is not applicable and do not take into account
any tax credits that may be available.
The information set forth above is as of the date of this 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.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NEW JERSEY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New Jersey State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the New Jersey Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New Jersey considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in New Jersey issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
Jersey issuers. Neither the Trust nor the Portfolio has independently verified
this information.
New Jersey has a well diversified economy and high wealth levels. Per capita
income ranks as one of the highest in the nation. The State's economy benefits
from its proximity to New York and other major eastern seaboard cities. New
Jersey's economy, like most states, suffered during the recent recession with
unemployment increasing and surpassing the national average. New Jersey's
adjusted unemployment rate for May 1995 was 6.5% compared to 5.7% nationally.
As of the date of this Statement of Additional Information, New Jersey's
general obligation debt was rated Aa1, AA+ and AA+, by Moody's, S&P and Fitch,
respectively. As a result of New Jersey's fiscal weakness, evidenced by
declining fund balances, S&P placed the State's general obligation debt and
related agency and lease obligations on CreditWatch with negative implications
in June 1991. In July, 1991 S&P downgraded the State's general obligation debt
from AAA to AA+. As part of this action, numerous agency and lease obligation
debts were also downgraded accordingly. These downgrades did not affect state
university and college ratings. In August 1992, Moody's downgraded New Jersey to
Aa1 from Aaa due to the use of one-time revenue items, revenue shortfalls and
ongoing operating deficits. S&P affirmed their AA+ rating for the State, but
retained the negative outlook. On December 16, 1992, Fitch lowered their rating
on the State to AA+ from AAA. The rating action was due to the State's decision,
with the most recent bond issuance, to defer debt service in the immediate
future in order to provide for unmet capital needs, while increasing debt
service requirements in future years wnen additional resources may or may not be
available.
As part of the 1992-1993 budget, the Legislature cut approximately $1
billion in spending from the Governor's budget, including cutbacks in both the
State's homestead rebate and general assistance programs. To cover the shortfall
resulting from the cutbacks, the State employee pension fund was revalued,
allowing the State to reduce its contribution, and a surplus in the school aid
funds was applied to the General Fund. The State ended fiscal 1993 with an $855
million surplus, approximately half of which was used in the 1994 budget. 1994
had an appropriation for all funds of $15.7 billion, up 4.8% from fiscal 1993
revised appropriations of $14.7 billion. Both years benefited from $412 million
in nonrecurring revenues from retroactive Federal Medicaid payments. After the
Legislature reduced the Governor's fiscal 1994 requests by $182 million, about
half the $855 million fiscal 1993 total surplus was used for fiscal 1994, with a
June 30, 1994 forecast of $416 million -- $110 million allocated to the General
Fund and over $305 million to rainy day and taxpayer relief funds.
In 1994, New Jersey adopted a 5% personal income tax cut retroactive to
January 1, 1994. In 1995, New Jersey adopted a 10% personal income tax cut
retroactive to January 1, 1995. On June 26, 1995, the New Jersey State
Legislature passed an additional 15% reduction to take effect January 1, 1996.
State officials estimate the revenue loss resulting from these tax cuts at over
$1 billion for fiscal 1996. To accommodate the tax cut, the fiscal 1996 budget
would rely on non-recurring revenues and the use of prior years' surplus.
Furthermore, a major focus of the spending reductions has been employer
contributions to retiree health care and pension systems which were cut by over
$863 million in fiscal 1995. There can be no assurance that the tax cuts will
not have an adverse impact on the State's finances and the demand for municipal
bonds in the State.
General obligation bonds of New Jersey are the primary method for New Jersey
financing of capital projects. These bonds are backed by the full faith and
credit of New Jersey. New Jersey tax revenues and certain other fees are pledged
to meet the principal and interest payments required to fully pay the debt. No
general obligation debt can be issued by New Jersey without prior voter
approval, except that, pursuant to a constitutional amendment, no voter approval
is required for any law authorizing the creation of a debt for the purpose of
refinancing all or a portion of the outstanding debt of New Jersey, so long as
such law requires that the refinancing provided debt service savings. The New
Jersey Constitution also provides that no voter approval is required for debt
issued for purposes of war, to repel invasion, to suppress insurrection or to
meet an emergency caused by disaster or act of God. Capital construction can
also be funded by appropriation of current revenues on a pay-as-you-go basis.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning.
Other State-related obligations include those created pursuant to the New
Jersey Building Authority Act, which has the power to construct facilities for
leasing to the State. The rental for such buildings is equal to the debt service
relating thereto plus payments in lieu of real estate taxes. Legislation
provides for future appropriations for State aid to local school districts equal
to debt service on a maximum principal amount of $280,000,000 of bonds issued by
such local school districts for construction and renovation of school facilities
and for State aid to counties equal to debt service on up to $80,000,000 of
bonds issued by counties for construction of county college facilities.
The authorizing legislation for various State entities provides for specific
budgetary procedures with respect to certain obligations issued by such
entities. Bonds issued pursuant to authorizing legislation of this type are
sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible State entities. Currently, there are two such entities available for
State appropriations to meet moral obligations. The New Jersey Housing and
Mortgage Finance Agency has not had a deficiency in a debt service reserve which
required New Jersey to appropriate funds. It is anticipated that the agency's
revenue will continue to be sufficient to cover debt service on its bonds. The
State provides the South Jersey Port Corporation with funds to cover all debt
service and property tax requirements, when earned revenues are anticipated to
be insufficient to cover these obligations. In the past, anticipated revenues
have, in some cases, been insufficient to cover debt service and/or insufficient
to cover all property tax requirements. These are numerous other State-created
entities with outstanding debt. This debt is supported by revenues derived from
or assets of the various projects financed by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties and
municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may be
issued and requiring their repayment within three months of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance of
bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the Local
Finance Board. State law also authorizes State officials to supervise fiscal
administration in any municipality facing financial difficulties.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $411,038,422. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$1,944,340 (equivalent to 0.47% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $1,609,137 (equivalent to 0.46% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $1,012,430 (equivalent to 0.46%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the period
from the start of business, December 3, 1993, to the fiscal year ended July 31,
1994, $22,188 and $22,653, respectively, of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's initial
sole shareholder (Eaton Vance) and by the Board of Trustees of the Trust, as
required by Rule 12b-1. During the fiscal year ended July 31, 1995, the
Principal Underwriter paid to Authorized Firms sales commissions of $26,511 on
sales of Fund shares. During the same period, the Fund paid sales commission
payments under the Plan to the Principal Underwriter aggregating $27,116. Such
payments reduced Uncovered Distribution Charges. During such period, no
contingent deferred sales charges were paid to the Principal Underwriter. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $295,000 (which
amount was equivalent to 8.9% of the Fund's net assets on such date). During the
fiscal year ended July 31, 1995, the Fund paid service fee payments under the
Plan aggregating $7,273, of which $7,040 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $125.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $4,973 and the
Portfolio paid IBT $91,170.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994,
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $0 $3,594(2) $135,000(4)
Samuel L. Hayes, III ...... 0 3,569(3) 150,000(5)
Norton H. Reamer .......... 0 3,545 135,000
John L. Thorndike ......... 0 3,661 140,000
Jack L. Treynor ........... 0 3,742 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $889 of deferred compensation.
(3) Includes $1,086 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from January 8, 1991 through
July 31, 1995 and for the one year period ended July 31, 1995. The total return
for the period prior to the Fund's commencement of operations on December 3,
1993 reflects the Portfolio's total return (or that of its predecessor) adjusted
to reflect any applicable Fund contingent deferred sales charge ("CDSC"). Total
return for this time period has not been adjusted to reflect the Fund's
distribution and/or service fees and certain other expenses. If such adjustments
were made, the performance would have been lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING DEDUCTING DEDUCTING THE CDSC DEDUCTING THE CDSC*
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 1/8/91 $1,000 $1,352.10 $1,352.10 35.21% 6.84% 35.21% 6.84%
1 Year
Ended
7/31/95** 7/31/94 $1,000 $1,052.00 $1,042.02 5.20% 5.20% 4.20% 4.20%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
*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.
</TABLE>
For the thirty-day period ended July 31, 1995, the yield of the Fund was
4.77%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.77% would be 7.40%, assuming a
combined federal and State tax rate of 35.54%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.92%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.04%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 44.81% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date PaineWebber for the benefit of Philip Corvelli,
Fort Lee, NJ owned beneficially and of record 6.04% of the outstanding shares of
the Fund. To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic New Jersey Tax Free Fund to EV
Classic New Jersey Municipals Fund on December 1, 1995.
<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 New
Jersey State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND NEW JERSEY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------- ------------------ NJ STATE ---------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- --------------------------------------- ------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78% 8.38%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 31.98% 5.88 6.62 7.35 8.09 8.82 9.56 10.29
$ 58,151-$121,300 $ 96,901-$147,700 35.40% 6.19 6.97 7.74 8.51 9.29 10.06 10.84
$121,301-$263,750 $147,701-$263,750 40.08% 6.68 7.51 8.34 9.18 10.01 10.85 11.68
Over $263,750 Over $263,750 43.45% 7.07 7.96 8.84 9.73 10.61 11.49 12.38
<FN>
*Net amount subject to federal and New Jersey personal income tax after deductions and exemptions.
+The combined federal and New Jersey tax brackets are calculated using the highest New Jersey tax rate applicable within each
bracket. Taxpayers with taxable income within such brackets may have lower combined tax brackets and taxable equivalent
yields than indicated above. The combined tax brackets assume that New Jersey 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 then those indicated above. The applicable federal tax rates within the brackets
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 New Jersey 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 New Jersey personal
income taxes, other income received by the Portfolio and allocated to the Fund may be taxable. The table does not take into
account state or local taxes, if any, payable on Fund distributions except for New Jersey personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax is not applicable and do not take into account
any tax credits that may be available.
The information set forth above is as of the date of this 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.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC PENNSYLVANIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Pennsylvania State and local income taxes in
the form of an investment exempt from Pennsylvania personal property taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Pennsylvania Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Pennsylvania considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Pennsylvania issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Pennsylvania issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Pennsylvania continues, however, to have a greater percentage of
its workers employed in manufacturing than the national average, leaving the
economy somewhat cyclical and vulnerable to recessionary forces. During 1993,
manufacturing accounted for 18% of employment. As of May 1995, the unadjusted
unemployment rate for Pennsylvania and the United States was 5.7%. Per capita
income in Pennsylvania for 1993 of $21,352 was higher than the per capita income
of the United States of $20,817.
REVENUES AND EXPENDITURES. Pennsylvania utilizes the fund method of accounting.
The General Fund, the State's largest fund, receives all tax receipts, revenues,
federal grants and reimbursements that are not specified by law to be deposited
elsewhere. Debt service on all obligations, except those issued for highway
purposes or for the benefit of other special revenue funds, is payable from the
General Fund. The General Fund closed fiscal years ended June 30, 1992, June 30,
1993 and June 30, 1994 with fund balances of $87,455, $698,945 and $892,940,
respectively.
The Governor's fiscal year 1996 budget contains no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending will
increase 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million and projects a $3.2
million fiscal year-end unappropriated surplus. The state Tax Stabilization Fund
had a balance at March 31, 1995 of $65.3 million.
The Pennsylvania Constitution requires all proceeds of motor fuels taxes,
vehicle registration fees, license taxes, operators' license fees and other
excise taxes imposed on products used in motor transportation to be used
exclusively for construction, reconstruction, maintenance and repair of and
safety on highways and bridges and for the payment of debt service on
obligations incurred for such purposes. The Motor License Fund is the fund
through which such revenues are accounted for and expended.
The Motor License Fund ended fiscal year ended June 30, 1994 with an
unappropriated balance of $107.5 million on a budgetary basis. State revenue
collections for fiscal year 1995 are projected to increase slightly from fiscal
1994. The budget for fiscal year 1996 includes a 2.3% increase in appropriations
from the prior year. The unappropriated balance of the General Fund at June 30,
1995 is projected to be approximately $3 million on a budgetary basis.
PENNSYLVANIA DEBT. The current Constitutional provisions pertaining to the
Pennsylvania debt permit the issuance of the following types of debt: (i) debt
to suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years (this debt need not be approved by the electorate)
and (iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Total outstanding general obligation debt totalled $5,075.8 million as of
June 30, 1994, an increase of $37.0 million from June 30, 1993. In its current
debt financing plans, Pennsylvania is emphasizing infrastructure investment to
improve and rehabilitate existing capital facilities, such as water supply
systems, and to construct new facilities, such as flood control systems and
public buildings.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
outstanding, may not exceed in the aggregate 20% of the revenues estimated to
accrue to the appropriate fund in the fiscal year. The State is not permitted to
fund deficits between fiscal years with any form of debt. All year end deficit
balances must be funded within the succeeding fiscal year's budget.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years.
STATE-RELATED OBLIGATIONS. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of or revenues derived from the various projects
financed; it is not an obligation of the State. Some of these agencies, however,
are indirectly dependent on state appropriations. State-related agencies and
their outstanding debt as of December 31, 1994 include the Delaware River Joint
Toll Bridge Commission ($56.3 million), the Delaware River Port Authority
($233.9 million), the Pennsylvania Economic Development Financing Authority
($659.9 million), the Pennsylvania Energy Development Authority ($162.1
million), the Pennsylvania Higher Education Assistance Agency ($1,283.8
million), the Pennsylvania Higher Education Facilities Authority ($1,965.8
million), the Pennsylvania Industrial Development Authority ($357.3 million),
the Pennsylvania Infrastructure Investment Authority ($227.5 million), the
Pennsylvania Turnpike Commission ($1,252.6 million), the Philadelphia Regional
Port Authority ($63.9 million) and the State Public School Building Authority
($286.8 million).
The only obligations of state-created agencies in Pennsylvania which bear a
moral obligation of the state are those issued by the Pennsylvania Housing
Finance Agency, a state-created agency which provides housing for lower and
moderate income families in the state, which had $2,300 million of bonds and
notes outstanding, and the Hospitals and Higher Education Facilities Authority
of Philadelphia which issued $21.1 million in bonds in 1993.
LOCAL GOVERNMENT DEBT. Local government in Pennsylvania consists of numerous
individual units. Each unit is distinct and independent of other local units,
although they may overlap geographically.
There is extensive general legislation applying to local government. For
example, the Local Government Unit Debt Act provides for uniform debt limits for
local government units, including municipalities and school districts, and
prescribes methods of incurring, evidencing, securing and collecting debt. Under
the Local Government Unit Debt Act, the ability of Pennsylvania municipalities
and school districts to engage in general obligation borrowing without electoral
approval is generally limited by their recent revenue collection experience.
Generally such subdivisions can levy real property taxes unlimited as to rate or
amount to pay debt service on general obligation borrowings.
Municipalities may also issue revenue obligations without limit and without
affecting their general obligation borrowing capacity if the obligations are
projected to be paid solely from project revenues.
Municipal authorities and industrial development authorities are widespread
in Pennsylvania. An authority is organized by a municipality acting singly or
jointly with another municipality and is governed by a board appointed by the
governing unit of the creating municipality or municipalities. Typically,
authorities are established to acquire, own and lease or operate one or more
projects and to borrow money and issue revenue bonds to finance them.
As of the date of this Statement of Additional Information, the City of
Philadelphia's general obligations are rated Ba, B and BB, by Moody's, S&P and
Fitch, respectively.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $502,250,304. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$2,416,419 (equivalent to 0.48% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $2,054,802 (equivalent to 0.46% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $1,300,484 (equivalent to 0.46%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the period
from the start of business, December 3, 1993, to the fiscal year ended July 31,
1994, $19,615 and $18,110, respectively, of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's initial
sole shareholder (Eaton Vance) and by the Board of Trustees of the Trust, as
required by Rule 12b-1. During the fiscal year ended July 31, 1995, the
Principal Underwriter paid to Authorized Firms sales commissions of $24,545 on
sales of Fund shares. During the same period, the Fund paid sales commission
payments under the Plan to the Principal Underwriter aggregating $24,791. Such
payments reduced Uncovered Distribution Charges. During such period, no
contingent deferred sales charges were paid to the Principal Underwriter. As at
July 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $474,000 (which
amount was equivalent to 18.1% of the Fund's net assets on such date). During
the fiscal year ended July 31, 1995, the Fund paid service fee payments under
the Plan aggregating $6,812, of which $6,554 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $242.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $2,576 and the
Portfolio paid no custodian fees to IBT.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994,
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $0 $3,994(2) $135,000(4)
Samuel L. Hayes, III ...... 0 3,955(3) 150,000(5)
Norton H. Reamer .......... 0 3,922 135,000
John L. Thorndike ......... 0 4,043 140,000
Jack L. Treynor ........... 0 4,154 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $988 of deferred compensation.
(3) Includes $1,209 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (36) 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 January 8, 1991 through
July 31, 1995 and for the one year period ended July 31, 1995. The total return
for the period prior to the Fund's commencement of operations on December 3,
1993 reflects the Portfolio's total return (or that of its predecessor) adjusted
to reflect any applicable Fund contingent deferred sales charge ("CDSC"). Total
return for this time period has not been adjusted to reflect the Fund's
distribution and/or service fees and certain other expenses. If such adjustments
were made, the performance would have been lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING DEDUCTING DEDUCTING THE CDSC DEDUCTING THE CDSC*
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 7/31/95 ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 1/8/91 $1,000 $1,334.07 $1,334.07 33.41% 6.52% 33.41% 6.52%
1 Year
Ended
7/31/95** 7/31/94 $1,000 $1,053.98 $1,043.98 5.40% 5.40% 4.40% 4.40%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
*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.
</TABLE>
For the thirty-day period ended July 31, 1995, the yield of the Fund was
4.76%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.76% would be 7.77%, assuming a
combined federal and State tax rate of 38.73%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.88%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.99%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 October
31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 25.59% of the outstanding
shares, which were held on behalf of its customers who are the beneficial owners
of such shares, and as to which it had voting power under certain limited
circumstances. In addition, as of such date NFSC FEBO Frank W. Hubbard and Jean
B. Hubbard, Moscow, PA owned beneficially and of record 13.59% of the
outstanding shares of the Fund. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Pennsylvania Tax Free Fund to EV
Classic Pennsylvania Municipals Fund on December 1, 1995.
<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 6% under the regular federal income tax and Pennsylvania
State and local tax laws in effect for 1996.
<TABLE>
<CAPTION>
TAXABLE YIELD NEEDED TO MATCH 6% FREE OF
--------------------------------------------------
FEDERAL, STATE,
1994 TAXABLE INCOME FEDERAL FEDERAL, STATE COUNTY AND
- ------------------------------------------ FEDERAL STATE AND STATE AND COUNTY PHILADELPHIA
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES TAXES (1) TAXES (2)
- ------------------- -------------------- ------------- ------------- ------------ ----------------- -----------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 15.00% 2.80% 7.26% 7.80% 8.24%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 28.00 2.80 8.57 9.20 9.73
$ 58,151 - $121,300 $ 96,901 - $147,700 31.00 2.80 8.95 9.60 10.15
$121,301 - $263,750 $147,701 - $263,750 36.00 2.80 9.65 10.36 10.94
Over $263,750 Over $263,750 39.60 2.80 10.22 10.97 11.59
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
Equivalent yields are based on a fixed $1,000 investment with all taxes deducted from income. Included in all areas are the
effects of: federal income tax and a 2.8% Pennsylvania income tax. (1) Includes a 4 mil county personal property tax imposed
by most counties. (2) Includes a 4 mil county personal property and a 4.86% Philadelphia school income tax. The equivalent
yields assume that the Pennsylvania state and local taxes referred to above are itemized deductions for federal income tax
purposes. Investors who do not itemize deductions on their federal income tax return will have a higher equivalent yield than
indicated.
Note: The above-indicated federal income tax brackets do not take into account the effect of a reduction in the deductibility
of itemized deductions (including Pennsylvania State and local taxes) for taxpayers with Adjusted Gross Income in excess of
$117,950. The tax brackets and taxable equivalent yields also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $117,950 and joint filers with Adjusted Gross Income in excess of
$176,950. The effective federal 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 Pennsylvania State and
local income taxes, other income received by the Portfolio and allocated to the Fund may be taxable. It should also be noted
that the interest earned on certain "private activity bonds" issued after August 7, 1986, while exempt from the regular
federal income tax, is treated as a tax preference item which could subject the recipient to the federal alternative minimum
tax. The illustrations assume the federal alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this 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.
</TABLE>
<PAGE>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
- EV Classic Arizona Tax Free Fund
- EV Classic Colorado Tax Free Fund
- EV Classic Connecticut Tax Free Fund
- EV Classic Michigan Tax Free Fund
- EV Classic Minnesota Tax Free Fund
- EV Classic New Jersey Tax Free Fund
- EV Classic Pennsylvania Tax Free Fund
- EV Classic Texas Tax Free Fund
- --------------------------------------------------------------------------------
[GRAPHIC OF A DOOR]
- --------------------------------------------------------------------------------
ANNUAL SHAREHOLDER REPORT
JULY 31, 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
One-year results......................................................... 3
President's letter to shareholders....................................... 4
Management Reports:
EV Classic Arizona Tax Free Fund................................. 5
EV Classic Colorado Tax Free Fund................................ 6
EV Classic Connecticut Tax Free Fund............................. 7
EV Classic Michigan Tax Free Fund................................ 8
EV Classic Minnesota Tax Free Fund............................... 9
EV Classic New Jersey Tax Free Fund.............................. 10
EV Classic Pennsylvania Tax Free Fund............................ 11
EV Classic Texas Tax Free Fund................................... 12
Financial Results................................................ 13
</TABLE>
2
<PAGE>
<TABLE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RESULTS FOR THE YEAR Fund's The after-tax
ENDED JULY 31, 1995. Dividends paid Fund's NAV distribution If your combined equivalent Federal
by Fund per share rate at Federal & state yield you income tax
during period at 7/31/95 7/31/95 tax rate is... would need is... information*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EV Classic ARIZONA $0.458 $9.51 4.63% [GRAPHIC OF 40.42% 7.74% 99.13%
Tax Free Fund ARIZONA]
- -----------------------------------------------------------------------------------------------------------------------------------
Ev Classic COLORADO $0.466 $9.23 4.80% [GRAPHIC OF 39.20% 7.87% 99.08%
Tax Free Fund COLORADO]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic CONNECTICUT $0.461 $9.18 4.77% [GRAPHIC OF 38.88% 7.79% 99.33%
Tax Free Fund CONNECTICUT]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic MICHIGAN $0.446 $9.26 4.57% [GRAPHIC OF 41.44% 7.77% 98.93%
Tax Free Fund MICHIGAN]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic MINNESOTA $0.466 $9.30 4.75% [GRAPHIC OF 41.44% 8.09% 99.13%
Tax Free Fund MINNESOTA]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic NEW JERSEY $0.481 $9.28 4.92% [GRAPHIC OF 40.21% 8.22% 99.46%
Tax Free Fund NEW JERSEY]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic PENNSYLVANIA $0.471 $9.18 4.88% [GRAPHIC OF 37.39% 7.84% 99.75%
Tax Free Fund PENNSYLVANIA]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic TEXAS $0.491 $9.19 5.09% [GRAPHIC OF 36.00% 7.91% 98.44%
Tax Fee Fund TEXAS]
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Percentages represent the amounts of the total dividends paid by the Funds, from net investment income during the year that ended
July 31, 1995, that have been designated as tax-exempt interest dividends. Tax legislation eliminated the exception to the market
discount rules applicable to tax-exempt obligations. As a result, certain tax-exempt obligations acquired by the Portfolio at
market discounts may generate a small amount of ordinary taxable income.
</TABLE>
3
<PAGE>
TO SHAREHOLDERS:
The global economy continues to demonstrate a pattern of slow growth with low
inflation. The U.S. economy is no exception, with Gross Domestic Product poised
to grow only modestly during 1995, between 2% and 3%, with inflation of less
than 3%. These characteristics bode well for all capital markets and
particularly fixed-income markets, including municipal bonds.
Indeed, municipal bonds performed well during the first half of 1995, posting
strong price gains as a result of this favorable investment environment.
However, during this period the municipal market underperformed the taxable
market because of concern about the potential passage of major tax reform (e.g.,
flat tax, value-added tax or consumption tax) legislation.
Were major tax reform to become law, municipal bonds would likely be
underperformers relative to taxable bonds because the current tax-advantaged
status of municipal bonds probably would be eliminated.
However, we at Eaton Vance believe there is little chance of major tax reform
legislation being enacted. Many reasons have led us to this conclusion. For
example, the inherent regressivity of the various flat tax proposals will
provoke much opposition, as will proposals to eliminate such tax breaks as
deductions for mortgage interest and state and local taxes. Also, such proposals
could seriously depress entire sectors of the U.S. economy.
Accordingly, we view this recent underperformance by municipal bonds due to
fears of tax reform as a potential buying opportunity. Municipal bonds could
represent an attractive asset class at these current relative trading
relationships, with the potential for future outperformance for those investors
willing to adopt a patient, long-term investment horizon.
In addition, proposals are now circulating in both Congress and the White House
to reduce the nation's budget deficit by severely cutting expenditures over the
next decade. If enacted, such a concept would drastically reduce the federal
government's borrowing needs and, as a result, would exert a meaningful downward
influence on interest rates across the entire yield curve. All fixed-income
instruments, including municipal bonds, would benefit.
<TABLE>
Headline: "DESPITE TAX POLICY UNCERTAINTIES, TAX-EXEMPT BONDS YIELD MORE THAN
88% OF TREASURY YIELDS.
Yield Bar Chart
<S> <C>
30-Year AA GOs 6.05%
GOs Tax-Equivalent 9.45%
30-year Treasury 8.9%
[This bar chart demonstrates the narrow difference between the yields of 30-year
Treasury bonds and those of 30-year AA-rated general obligation bonds. It also
shows the taxable equivalent yield of GOs in the 36% tax bracket.]
<FN>
Source: Bloomberg; 7/31/95
Principal and intrest payments of Treasury securities are guaranteed by the U.S.
government. *Bloomberg GO yield is a compilation of a representative variety of
general obligation bonds and is not necessarily represented by the Fund's
yield. Statistics as of July 31,1995. Past performance is no guarantee of future
results.
</TABLE>
We will continue to monitor changes in economic and political conditions and to
pursue the goal of your Fund: to provide you with a competitive distribution of
tax-free income from a portfolio of quality municipal bonds.+
Sincerely,
/s/ THOMAS J. FETTER
Thomas J. Fetter
President
September 20, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
- --------------------------------------------------------------------------------
Included in the pages that follow are performance charts that compare your
Fund's total return with that of a broad-based securities market index. The
lines on the chart represent the total returns of $10,000 hypothetical
investments in your Fund and the unmanaged Lehman Brothers Municipal Bond Index.
The solid line on the chart represents the Fund's performance. The Fund's total
return figure reflects fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions. The
dotted line represents the performance of the Lehman Brothers Municipal Bond
Index, a broad-based, widely recognized unmanaged index of municipal bonds.
Whereas the Fund's portfolio is composed principally of bonds solely from your
individual state, the Index is composed of bonds from all 50 states and many
jurisdictions. The Index's total return does not reflect any commissions or
expenses that would be incurred if an investor individually purchased or sold
the securities represented in the Index.
- --------------------------------------------------------------------------------
4
<PAGE>
EV CLASSIC ARIZONA TAX FREE FUND
YOUR INVESTMENT AT WORK
Navajo County PCR
Arizona Public Service Co.
The Arizona Public Service Company is one of the largest public utilities in
Arizona. Proceeds from this Navajo County Pollution Control Revenue bond issue
were directed toward various construction projects. In addition, funds were used
to upgrade the operations and maintenance facilities at the Navajo County
pollution control plant in the Painted Desert. The bond, which has a coupon of
5.5%, is insured by AMBAC and is rated Aaa by Moody's rating service. The issue
was representative of management's focus on quality during the period.
Naturally, private insurance does not remove the market risks associated with
this investment.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C>
Number of issues................................................... 89
Average quality.................................................... Aa-
Investment grade................................................... 95.9%
Effective maturity................................................. 17.17 yrs.
Largest sectors:
Utilities....................................................... 20.3%
Insured hospitals............................................... 13.1*
Insured general obligations..................................... 8.6*
Water & sewer................................................... 8.5
General obligations............................................. 7.9
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Arizona
Arizona's economic growth has slowed in recent months but has nevertheless
remained well ahead of the rest of the nation. The state's unemployment rate
hovered near the 5% level during the first quarter of 1995 - one full
percentage point lower than a year earlier - before rising to 5.5% at mid-year
due to weakness in the construction industry. Manufacturing - widely viewed as
the lynchpin of economic growth - has slowed somewhat from its torrid 1994 pace,
when the sector accounted for nearly 10,000 new jobs, the strongest yearly gain
in a decade.
Manufacturing jobs now represent about 11% of the state's total employment.
Efforts to diversify the Arizona economy beyond mining and agriculture continued
to pay dividends in the past year. Most of the growth has centered on the
service sectors - including finance, banking, and healthcare - which support the
state's large population of retirees. Arizona remains in sound financial
condition. The state's general fund balance was boosted by cost cuts and strong
tax revenue gains in fiscal 1994 and 1995. However, scheduled tax cuts for 1996
and 1997 will produce a financial challenge for the state if the economy slows
significantly.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC ARIZONA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through july 31, 1995
<CAPTION>
CUMULATIVE 1 LIFE
TOTAL RETURN YEAR OF FUND*
<S> <C> <C>
With CDSC 5.4% 1.8%
Without CDSC 6.4% 1.8%
</TABLE>
<TABLE>
EV CLASSIC ARIZONA TAX FREE FUND: $10,279
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE CLASSIC AZ LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,099 10,114
2/94 9,898 9,852
3/94 9,401 9,451
4/94 9,442 9,531
5/94 9,515 9,614
6/94 9,442 9,558
7/94 9,658 9,730
8/94 9,680 9,764
9/94 9,485 9,621
10/94 9,196 9,450
11/94 8,935 9,279
12/94 9,224 9,483
1/95 9,602 9,754
2/95 9,968 10,038
3/95 10,057 10,153
4/95 10,067 10,165
5/95 10,391 10,490
6/95 10,216 10,398
7/95 10,279 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/13/93. + Index information is available
only at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The market recovered significantly in the first six months of the year from the
collapse of 1994, although questions over tax reform proposals caused some
lingering uncertainty. The Portfolio benefited from its holdings of discount
issues which rallied sharply with the decline in interest rates. Because the
Arizona market was characterized by its typically low issuance and narrow
quality spreads, I have focused on upgrading quality. Moreover, I balanced a
large weighting in high quality, insured bonds with positions in higher-yielding
issues to boost the Fund's income. "
Cynthia J. Clemson
5
<PAGE>
EV CLASSIC COLORADO TAX FREE FUND
YOUR INVESTMENT AT WORK
Colorado Health Facilities Auth.
Sisters of Charity Health Care
Revenue Bonds
The proceeds of these bonds were used to finance the cost of equipment, capital
expenditures and renovations on several Colorado hospitals, as well as to refund
previous outstanding debt of the Sisters of Charity Healthcare Systems. The
Colorado Health Facilities Authority provides financing for health care
facilities and is a vehicle by which Colorado health care institutions may
refinance outstanding debt. The issue has a 5.25% coupon and is insured by MBIA.
Naturally, private insurance does not remove the market risk associated with
this investment.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues................................................... 46
Average quality.................................................... Aa-
Investment grade................................................... 99.0%
Effective maturity................................................. 17.18 yrs.
Largest sectors:
Insured hospitals............................................... 15.0%*
Housing ........................................................ 11.6
Insured general obligations..................................... 11.4*
Transportation.................................................. 11.1
Hospitals....................................................... 10.4
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Colorado
The Colorado economy has reflected the slowdown at the national level.
Employment growth for the state is expected to rise a modest 2.8% for the year,
a decline from the 4.7% job growth registered in 1994. Restructuring at several
large employers in the transportation and utilities sectors - including Lowry
Air Force Base, Public Service Co., Continental Airlines, and U.S. West -
resulted in layoffs that hit the state especially hard. However, it's expected
that when the restructurings are completed, the sector will resume its fast
growth rate.
Elsewhere, the financial, insurance and real estate sectors should
enjoy above-average employment growth. Colorado's finances remain in excellent
health, thanks in part to blockbuster revenue performance in fiscal 1994 and
very strong 5.5% revenue growth in fiscal 1995. Income and excise tax revenues
were especially strong. Colorado's successful efforts to diversify its
economic base have resulted in the state's economy more closely mirroring the
national picture. While the state's growth may be impeded somewhat by higher
interest rates, Colorado should continue to enjoy a gentler "soft landing"
than the U.S. as a whole.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC COLORADO TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 4.9% 0.2%
Without CDSC 5.9% 0.2%
</TABLE>
<TABLE>
EV CLASSIC COLORADO TAX FREE FUND: $ 9,996
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. COLORADO LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,104 10,114
2/94 9,773 9,852
3/94 9,197 9,451
4/94 9,250 9,531
5/94 9,355 9,614
6/94 9,223 9,558
7/94 9,440 9,730
8/94 9,464 9,764
9/94 9,271 9,621
10/94 9,036 9,450
11/94 8,818 9,279
12/94 9,076 9,483
1/95 9,434 9,754
2/95 9,790 10,038
3/95 9,847 10,153
4/95 9,836 10,165
5/95 10,119 10,490
6/95 9,943 10,398
7/95 9,996 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investments operations commenced 12/10/93. +Index information is available
only at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Following the most difficult year on record, the bond market managed to recover
much lost ground in early 1995. Insured bonds played a large role in the
Portfolio as tight supply and narrow spreads dictated a continuing emphasis on
quality. As rates declined early in the year, the market rallied strongly. The
Fund benefited from its positions in higher-yielding bonds and discount issues,
which were established in the wake of last year's market decline. These
positions offered an attractive balance to the Portfolio's insured holdings."
Cynthia J. Clemson
6
<PAGE>
EV CLASSIC CONNECTICUT TAX FREE FUND
YOUR INVESTMENT AT WORK
Loomis Chaffee School
MBIA Insured bonds
Issued in 1995 under the aegis of the Connecticut Health and Educational
Facilities Authority, the proceeds of these bonds were used to finance the
construction of a new dormitory and various renovations at Loomis Chaffee
School, a private secondary school located in Windsor. The school maintains a
selective admissions policy, has an endowment of $30 million, and has an
outstanding debt of only half that amount. The school's impressive profile and
balanced finances gave MBIA the comfort to insure this issue, which is rated
Aaa/AAA. Naturally, private insurance does not remove the market risk associated
with this investment.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C>
Number of issues................................................... 100
Average quality.................................................... Aa-
Investment grade................................................... 99.5%
Effective maturity................................................. 16.6 yrs.
Largest sectors:
Healthcare (Non-Hospital)....................................... 12.5%
Education....................................................... 10.8
Insured hospitals............................................... 10.0*
Housing......................................................... 8.2
Solid waste..................................................... 8.1
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Connecticut
The economy in Connecticut is beginning to regain its luster. Economic
indicators such as job growth and personal income continue to strengthen from
their late 1980s bout with layoffs and restructuring that afflicted the state.
The state's deep recession led to major job losses in such industries as
finance, real estate, insurance and defense, which were hard-hit by industry
restructurings, and shrinking government appropriations. Together, those
setbacks eroded the state's economic base. However, while the employment outlook
for those industries remains relatively weak, job gains in construction,
service, trade, health care and tourism have partially offset those losses and
have helped put the state on the road to recovery.
While the municipal market has been roiled by uncertainties over tax reform and
the fallout from the Orange County debacle, investors in Connecticut tax-exempt
debt can feel comfortable knowing that this state has a long history of
conservative financial management and employs good disclosure practices.
Connecticut is steadily advancing beyond the difficulties of its recent past and
is moving to improve its financial future.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN EV CLASSIC CONNECTICUT
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 3.5% -0.2%
Without CDSC 4.5% -0.2%
</TABLE>
<TABLE>
EV CLASSIC CONNECTICUT TAX FREE FUND: $ 9,956
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. CONN. LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,086 10,114
2/94 9,854 9,852
3/94 9,348 9,451
4/94 9,370 9,531
5/94 9,444 9,614
6/94 9,343 9,558
7/94 9,529 9,730
8/94 9,531 9,764
9/94 9,337 9,621
10/94 9,070 9,450
11/94 8,747 9,279
12/94 9,037 9,483
1/95 9,373 9,754
2/95 9,687 10,038
3/95 9,765 10,153
4/95 9,764 10,165
5/95 10,015 10,490
6/95 9,860 10,398
7/95 9,956 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/9/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The extreme market volatility of last autumn created a good opportunity to
purchase deep discount bonds - even among high quality AA- and AAA-rated bonds -
and pick up yield without sacrificing credit quality. By the Spring of 1995, the
market had rallied sharply and these discount bonds had significantly
outperformed other segments of the market, adding to the performance of the
Fund. The market has quieted in recent months, especially the Connecticut
market, where new issuance is limited largely to generic general obligation
issues."
Nicole Anderes
7
<PAGE>
EV CLASSIC MICHIGAN TAX FREE FUND
YOUR INVESTMENT AT WORK
City of Detroit,MI
Convention Facility Tax Revenue
Cobo Hall Expansion Project
The proceeds of these bonds were used to pre-refund a previous bond issued in
1985. The previous bond financed the acquisition and construction costs of
expanding Detroit's Cobo Hall Convention Center, a major convention and
entertainment complex. This bond is backed by the City's share of distributions
of the state of Michigan hotel occupancy tax and liquor tax deposited in the
Convention Facility Development Fund. The bond has a coupon of 5.25% and is a
good example of the Fund's efforts during the period to seek value in non-rated
bonds.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C>
Number of issues................................................... 105
Average quality.................................................... AA-
Investment grade................................................... 98.6%
Effective maturity................................................. 15.52 yrs.
Largest sectors:
Hospitals....................................................... 12.9%
Insured general obligations..................................... 12.8*
Insured hospitals............................................... 12.4*
Insured water & sewer........................................... 7.5*
Insured electric utilities...................................... 6.3*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Michigan
Michigan's economy remained on the upswing in 1995. The state's unemployment
rate fell to 5.1% in July as the retail, construction, and manufacturing sectors
of the economy each continued to post good results. Motor vehicle sales, while
below 1994's blistering 8.5% growth rate, continued at an annual rate well above
15 million units.The state's wage and salary levels rose slightly from last
year, with construction employment especially robust, registering a 12% gain.
Reflecting a strong regional economy, housing starts in the midwest region
surpassed those nationally.
Michigan's 1995 tax revenues are running well above last year's, with baseline
revenues rising a strong 15.4% in June. Most of the revenue increase is the
result of strong growth in income, single-business, and use taxes. The state has
also benefited from a 200% increase in the cigarette tax rate, as well as the
start-up of the new state education property and real estate taxes. As a result
of cost containment measures, tax and educational funding reforms, strong
personal income growth and tax revenue growth, Michigan's financial picture has
brightened dramatically. Reflecting that improvement, the state's credit rating
has been upgraded to AA.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC MICHIGAN TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 4.5% 0.2%
Without CDSC 5.5% 0.2%
</TABLE>
<TABLE>
EV CLASSIC MICHIGAN TAX FREE FUND: $10,006
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. MICHIGAN LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,117 10,114
2/94 9,815 9,852
3/94 9,287 9,451
4/94 9,339 9,531
5/94 9,402 9,614
6/94 9,299 9,558
7/94 9,483 9,730
8/94 9,505 9,764
9/94 9,351 9,621
10/94 9,104 9,450
11/94 8,874 9,279
12/94 9,120 9,483
1/95 9,444 9,754
2/95 9,745 10,038
3/95 9,832 10,153
4/95 9,830 10,165
5/95 10,111 10,490
6/95 9,945 10,398
7/95 10,006 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/7/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Although quality spreads - the yield difference between bonds of varying
quality - were narrow during the period, management sought opportunities in
non-rated bonds and private placements. These bonds offered opportunities to add
incremental yield to the Fund. The Fund concurrently reduced its exposure to AA
bonds, adopting a barbell strategy. That strategy should benefit the Fund in
coming months if, as I believe, income begins to comprise an increasingly large
part of total return for fixed-income investments."
Timothy T. Browse
8
<PAGE>
EV CLASSIC MINNESOTA TAX FREE FUND
YOUR INVESTMENT AT WORK
Duluth MN Economic Dev. Auth
Health Care Facilities
The Duluth Clinic Ltd
The proceeds of these bonds were used to finance improvements for the
Duluth-based health clinic, as well as to refund bonds previously issued by the
Clinic.
The issue financed the acquisition of land and the building of a
55,000-square-feet clinic addition, the remodelling of additional facilities,
and the purchase and installation of new medical equipment. The bonds have a
6.2% coupon and are insured by AMBAC. Naturally, private insurance does not
remove the market risk associated with this investment.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues.................................................. 75
Average quality................................................... AA
Investment grade.................................................. 98.8%
Effective maturity................................................ 16.73 yrs.
Largest sectors:
Insured hospitals.............................................. 19.6%*
Housing........................................................ 13.6
General obligations............................................ 11.1
Industrial development/Pollution Control....................... 8.8
Hospitals...................................................... 6.9
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Minnesota
The Minnesota economy gathered momentum in the first half of 1995, with
signficant employment gains and a boost in real income. The state's jobless rate
neared historic lows as manufacturing and large retail expansions resulted in
fast job growth. Once again, the state's computer, electronics, and technology
industries were responsible for much of the employment gains. The agricultural
and food-processing sectors also enjoyed job additions. The state's economy also
benefited from infrastructure repairs and construction in areas ravaged by the
previous year's floods.
Due to Minnesota's resurgent economy, it is likely that income tax and sales tax
receipts will exceed previous budget forecasts. In a robust economic
environment, the state has been able to restore its previously depleted reserve
funds. Minnesota continues to benefit from its wide exposure to the rapidly
growing health care and technology sectors, and should be able to weather a
potential slowdown at the national level. However, the state is concurrently
facing growing social services and public safety costs that may prove a larger
financial burden in the future.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC MINNESOTA
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 3.5% 0.6%
Without CDSC 4.5% 0.6%
</TABLE>
<TABLE>
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
EV CLASSIC MINNESOTA TAX FREE FUND: $10,040
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
<CAPTION>
DATE C. MINNESOTA LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,095 10,114
2/94 9,875 9,852
3/94 9,401 9,451
4/94 9,424 9,531
5/94 9,528 9,614
6/94 9,448 9,558
7/94 9,613 9,730
8/94 9,637 9,764
9/94 9,464 9,621
10/94 9,209 9,450
11/94 8,919 9,279
12/94 9,208 9,483
1/95 9,501 9,754
2/95 9,824 10,038
3/95 9,934 10,153
4/95 9,913 10,165
5/95 10,162 10,490
6/95 9,988 10,398
7/95 10,040 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/9/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Market conditions have resulted in very narrow quality spreads in 1995. In this
climate, I have employed a "barbell" strategy, emphasizing quality on one hand
and incremental yield additions on the other. The Portfolio's insured bonds have
been an important source of quality and liquidity. Meanwhile, I have generally
avoided par bonds in favor of discount issues. Finally, I have carefully
researched high-yielding issues as a way to add selectively to the Fund's yield
and have added to the health care sector, which has grown more attractive in
recent months."
Robert B. MacIntosh
9
<PAGE>
EV CLASSIC NEW JERSEY TAX FREE FUND
YOUR INVESTMENT AT WORK
Gloucester County, NJ
Utility Authority
Water & Sewer Revenue Bonds
Issued by the Gloucester County Utility Authority, this bond was dedicated to
funding Phase III of a waste treatment facility in Gloucester County.
Specifically, the program is designed to upgrade the maintenance and operating
efficiency of a waste treatment facility. By constructing a second sludge
incinerator, the plant should reach a 20% increase in its daily capacity. The
bond provided improvements for the County, while representing an attractive
yielding investment supported by residents' water and sewer bill payments.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues.................................................. 130
Average quality................................................... A
Investment grade.................................................. 87.6%
Effective maturity................................................ 16.25 yrs.
Largest sectors:
Transportation................................................. 15.1%
General obligations............................................ 13.3
Solid waste.................................................... 6.8
Hospitals...................................................... 6.6
Insured lease revenue.......................................... 5.8*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: New Jersey
The New Jersey economy has reflected the slower activity of the national scene.
Declines in the housing market, manufacturing, and consumer spending have
contributed to the state's slowdown. Nearly 10,000 jobs have been lost in
manufacturing alone this year. The state's unemployment rate stood at 6.8% in
July, remaining well above the national rate. On a more positive note, the
service sector continued to add jobs. More than two-thirds of the 52,000 private
sector jobs created in the past year within the state were generated by the
service segment, including business, management, engineering, retailing, food
services, and health care. And while housing starts were depressed, outlays for
commercial construction and public works projects remained fairly strong.
New Jersey has benefited from its increasingly well-managed financial operations
and a strong display of fiscal prudence by the Whitman administration.
Implementing stricter cost controls and reductions in expenditures, New Jersey
is providing a model for other states hoping to control social spending.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC NEW JERSEY
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
- ---------------------------------------
<S> <C> <C>
With CDSC 4.2% 0.7%
Without CDSC 5.2% 0.7%
</TABLE>
<TABLE>
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
EV CLASSIC NEW JERSEY TAX FREE FUND: $10,067
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
<CAPTION>
DATE C. NEW JERSEY LEHMAN BROS.
- ------------------------------------------------------
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,087 10,114
2/94 9,868 9,852
3/94 9,413 9,451
4/94 9,458 9,531
5/94 9,523 9,614
6/94 9,424 9,558
7/94 9,570 9,730
8/94 9,616 9,764
9/94 9,454 9,621
10/94 9,231 9,450
11/94 8,983 9,279
12/94 9,243 9,483
1/95 9,538 9,754
2/95 9,790 10,038
3/95 9,881 10,153
4/95 9,892 10,165
5/95 10,155 10,490
6/95 10,024 10,398
7/95 10,067 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/3/93. + Index information is available
only at month-end, therefore, the line comparison begins at the next
month-end following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The past year has proven to be a highly volatile period for the bond market,
given last year's sharp decline and the subsequent strong market rally we have
enjoyed in 1995. I have focused on the insured sector to provide quality and
ensure good liquidity for the Portfolio. At the same time, I've increased
slightly the Portfolio's exposure to the health care sector, which has improved
somewhat in recent months, and have added some select high-yielding situations,
which helped add yield to the Fund."
Robert B. MacIntosh
10
<PAGE>
EV CLASSIC PENNSYLVANIA TAX FREE FUND
YOUR INVESTMENT AT WORK
Chester County
Industrial Development Auth. Senior Life Choice of Kimberton
The proceeds of these bonds are being used to fund the construction of the
Continuing Care Retirement Center, an assisted living project in Kimberton, PA.
This issue is a good example of the Portfolio's efforts to focus on non-rated
bonds and private placement issues. Because the issue was purchased in its
entirety by Eaton Vance, we were able to structure the deal with favorable
terms. With an 8.05% coupon, the bonds represent a 250 basis point advantage
over other long-term Pennsylvania issues.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues................................................. 132
Average quality.................................................. Aa-
Investment grade................................................. 95.1%
Effective maturity............................................... 14.13 yrs.
Largest sectors:
Hospitals..................................................... 22.6%
Housing....................................................... 12.3
Industrial development authority.............................. 8.7
Insured hospitals............................................. 7.1*
Escrowed...................................................... 6.5
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Pennsylvania
The Pennsylvania economy continues to demonstrate the beneficial effects of a
shift from its past reliance on manufacturing toward a growing diversification
into the service sectors. Pennsylvania's unemployment rate declined sharply
during the period, falling to 5.4% in July. The service sector continued to
account for nearly two-thirds of the state's job gains, with health services and
social services pacing the gains. Durable goods manufacturing also added
significantly to job growth, led by metals and industrial machinery.
Pennsylvania has now posted three consecutive years with surplus operations.
That marks a significant departure from the early 1990s, when a declining
cyclical economy and rising social costs played havoc with the state's finances.
Importantly, with an improved economic mix and a stronger national and regional
picture, Pennsylvania has returned to fiscal balance in recent years. The
Commonwealth's fiscal outlook has benefited from a tax package implemented in
1991, as well as from stricter cost controls and an improving revenue base
resulting from a stronger economy.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC PENNSYLVANIA
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 4.4% 0.1%
Without CDSC 5.4% 0.1%
</TABLE>
<TABLE>
EV CLASSIC PENNSYLVANIA TAX FREE FUND: $ 9,979
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. PENNSYLVANIA LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,111 10,114
2/94 9,831 9,852
3/94 9,314 9,451
4/94 9,348 9,531
5/94 9,423 9,614
6/94 9,322 9,558
7/94 9,468 9,730
8/94 9,502 9,764
9/94 9,350 9,621
10/94 9,125 9,450
11/94 8,823 9,279
12/94 9,062 9,483
1/95 9,368 9,754
2/95 9,651 10,038
3/95 9,762 10,153
4/95 9,752 10,165
5/95 10,047 10,490
6/95 9,925 10,398
7/95 9,979 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/3/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The market outlook for the municipal sector has improved significantly
following a difficult 1994. With a slow growth economy and relatively low
municipal supply, the municipal market has fared well in 1995. Accordingly, I
have become somewhat more constructive toward the market, adding to positions in
bonds that tend to be more sensitive to interest rate changes. Elsewhere, I've
continued to be very selective about investments in hospital bonds. Finally, in
a fairly quiet market, I have looked increasingly to private placements and
non-rated bonds for opportunities to increase the Fund's yield."
David C. Reilly
11
<PAGE>
EV CLASSIC TEXAS TAX FREE FUND
YOUR INVESTMENT AT WORK
Round Rock TX School District
Permanent School Fund
The Round Rock, TX school district serves a small community north of Austin.
Insured by the state's Permanent School Fund, the issue is rated AAA. The
state's Permanent School Fund finances Texas public education, with interest and
dividend income subsidizing local school operations. PSF bonds are popular with
the state's investors because they benefit Texas schools only and represent a
further diversification away from the major national municipal insurers.
Naturally, private insurance does not remove the market risk associated with
this investment.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues................................................. 60
Average quality.................................................. AA
Investment grade................................................. 97.3%
Effective maturity............................................... 16.49 yrs.
Largest sectors:
General obligations........................................... 16.8%
Insured electric utilities.................................... 14.5*
Insured transportation........................................ 12.0*
Hospitals..................................................... 11.1
Industrial develop./pollution control......................... 7.0
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Texas
The Texas economy has outpaced the national output throughout the 1990s. The
economy continues to expand while diversifying its employment base. In 1994
alone, 250,000 jobs were added. That pace is expected to continue into 1995, as
the state increases its exposure to the manufacturing and service sectors.
Construction has been especially strong as the state has seen a strong
in-migration from other states. That is a marked departure from the 1980s, when
the oil and gas economy was wracked by a deep recession. In July, the state's
unemployment rate hovered around the 6% level, slightly above the national rate.
The Texas financial picture is improving. Despite a 10% growth in budgeted
expenditures, the state has returned to a balanced budget due to a surge in
income tax and sales tax revenues. The state is expanding its economy and is
poised to benefit from increased trade with Latin America. Texas is also
addressing important fiscal issues, including Medicaid, welfare reform, and
educational funding.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC TEXAS TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 4.2% 0.3%
Without CDSC 5.2% 0.3%
</TABLE>
<TABLE>
EV CLASSIC TEXAS TAX FREE FUND: $10,041
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. TEXAS LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,141 10,114
2/94 9,822 9,852
3/94 9,275 9,451
4/94 9,321 9,531
5/94 9,418 9,614
6/94 9,328 9,558
7/94 9,538 9,730
8/94 9,585 9,764
9/94 9,403 9,621
10/94 9,138 9,450
11/94 8,847 9,279
12/94 9,141 9,483
1/95 9,482 9,754
2/95 9,811 10,038
3/95 9,893 10,153
4/95 9,873 10,165
5/95 10,171 10,490
6/95 9,996 10,398
7/95 10,041 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/8/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"In a market characterized by narrow quality spreads, insured bonds composed a
significant portion of the Portfolio, affording continuing high quality as well
as good liquidity. While insured bonds provided quality, I looked to the
non-rated sectors to add yield to the Fund. I sought to take advantage of market
inefficiencies in that sector to add attractive issues to the Portfolio. In my
view, income is likely to be an increasingly important component of total return
in coming months."
Timothy T. Browse
12
<PAGE>
-------
Ev Classic Tax Free Funds
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $2,424,131 $1,912,275 $4,593,347 $4,558,125
Unrealized appreciation (depreciation) 8,446 38,550 (1,480) (45,753)
---------- ---------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $2,432,577 $1,950,825 $4,591,867 $4,512,372
Receivable for Fund shares sold 10,010 -- -- --
Receivable from the Administrator (Note 4) 18,453 17,169 22,099 12,579
Other assets 565 -- -- --
Deferred organization expenses (Note 1D) 6,959 5,906 7,658 7,360
---------- ---------- ---------- ----------
Total assets $2,468,564 $1,973,900 $4,621,624 $4,532,311
---------- ---------- ---------- ----------
LIABILITIES:
Dividends payable $ 2,179 $ 1,814 $ 4,225 $ 3,965
Payable for Fund shares redeemed -- -- 2,209 51,151
Payable to affiliates --
Trustees' fees -- -- -- 14
Custodian fee 84 84 84 63
Accrued expenses 1,091 895 1,446 1,692
---------- ---------- ---------- ----------
Total liabilities $ 3,354 $ 2,793 $ 7,964 $ 56,885
---------- ---------- ---------- ----------
NET ASSETS $2,465,210 $1,971,107 $4,613,660 $4,475,426
========== ========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $2,588,829 $2,083,570 $4,730,988 $4,861,363
Accumulated net realized loss on investment and financial
futures transactions (computed on the basis of
identified cost) (140,470) (157,228) (118,946) (354,495)
Accumulated undistributed net investment income 8,405 6,215 3,098 14,311
Unrealized appreciation (depreciation) of investments and
financial futures contracts from Portfolio (computed
on the basis of identified cost) 8,446 38,550 (1,480) (45,753)
---------- ---------- ---------- ----------
Total $2,465,210 $1,971,107 $4,613,660 $4,475,426
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 259,292 213,512 502,774 483,268
========== ========== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (net assets / shares of beneficial interest
outstanding)(Note 6) $9.51 $9.23 $9.18 $9.26
===== ===== ===== =====
</TABLE>
See notes to financial statements
13
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
---------- ---------- ------------ --------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $3,599,799 $3,296,342 $2,780,049 $476,950
Unrealized appreciation (depreciation) 60,097 (11,443) (144,008) (31,789)
---------- ---------- ---------- --------
Total investment in Portfolio, at value (Note 1A) $3,659,896 $3,284,899 $2,636,041 $445,161
Receivable for Fund shares sold -- -- -- --
Receivable from the Administrator (Note 4) 24,179 22,188 19,615 15,081
Deferred organization expenses (Note 1D) 9,097 10,081 8,898 9,588
---------- ---------- ---------- --------
Total assets $3,693,172 $3,317,168 $2,664,554 $469,830
---------- ---------- ---------- --------
LIABILITIES:
Dividends payable $ 3,361 $ 3,135 $ 2,514 $ 457
Payable for Fund shares redeemed -- 5,000 39,234 --
Payable to affiliates --
Trustees' fees 14 -- -- --
Custodian fee 84 84 -- 84
Accrued expenses 1,402 1,553 1,973 668
---------- ---------- ---------- --------
Total liabilities $ 4,861 $ 9,772 $ 43,721 $ 1,209
---------- ---------- ---------- --------
NET ASSETS $3,688,311 $3,307,396 $2,620,833 $468,621
========== ========== ========== ========
SOURCES OF NET ASSETS:
Paid-in capital $3,936,636 $3,495,659 $3,038,340 $561,594
Accumulated net realized loss on investment and financial
futures transactions (computed on the basis of
identified cost) (321,125) (182,451) (281,486) (61,218)
Accumulated undistributed net investment income 12,703 5,631 7,987 34
Unrealized appreciation (depreciation) of investments and
financial futures contracts from Portfolio (computed on
the basis of identified cost) 60,097 (11,443) (144,008) (31,789)
---------- ---------- ---------- --------
Total $3,688,311 $3,307,396 $2,620,833 $468,621
========== ========== ========== ========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 396,543 356,587 285,423 51,002
========== ========== ========== ========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (net assets / shares of beneficial interest
outstanding)(Note 6) $9.30 $9.28 $9.18 $9.19
===== ===== ===== =====
</TABLE>
See notes to financial statements
14
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 190,274 $ 140,211 $ 240,411 $ 346,533
Expenses allocated from Portfolio (15,748) (5,718) (20,347) (26,465)
--------- --------- --------- ---------
Net investment income from Portfolio $ 174,526 $ 134,493 $ 220,064 $ 320,068
--------- --------- --------- ---------
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ -- $ -- $ -- $ 163
Distribution costs (Note 5) 28,540 21,174 36,577 51,466
Custodian fees (Note 4) 4,972 4,950 3,449 3,955
Registration costs 5,314 186 550 1,289
Legal and accounting services 5,288 4,155 5,366 7,626
Transfer and dividend disbursing agent fees 2,370 1,532 3,252 4,130
Amortization of organization expenses (Note 1D) 1,990 1,763 2,284 2,166
Printing and postage 1,535 5,099 5,279 5,950
Miscellaneous 737 578 1,919 1,157
--------- --------- --------- ---------
Total expenses $ 50,746 $ 39,437 $ 58,676 $ 77,902
Deduct allocation of expenses to the Administrator (Note 4) 18,453 17,169 22,099 12,579
--------- --------- --------- ---------
Net expenses $ 32,293 $ 22,268 $ 36,577 $ 65,323
--------- --------- --------- ---------
Net investment income $ 142,233 $ 112,225 $ 183,487 $ 254,745
--------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(101,251) $(106,034) $ (54,933) $(184,280)
Financial futures contracts (17,601) (31,604) (64,301) (55,979)
--------- --------- --------- ----------
Net realized loss on investments $(118,852) $(137,638) $(119,234) $(240,259)
Change in unrealized appreciation of investments and
financial futures contracts 158,005 125,129 103,779 255,527
--------- --------- --------- ---------
Net realized and unrealized gain (loss) $ 39,153 $ (12,509) $ (15,455) $ 15,268
--------- --------- --------- ---------
Net increase in net assets from operations $ 181,386 $ 99,716 $ 168,032 $ 270,013
========= ========= ========= =========
</TABLE>
See notes to financial statements
15
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
--------- ---------- ------------ --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 302,088 $ 231,446 $ 217,731 $ 45,245
Expenses allocated from Portfolio (22,764) (18,665) (16,581) (467)
--------- --------- --------- --------
Net investment income from Portfolio $ 279,324 $ 212,781 $ 201,150 $ 44,778
--------- --------- --------- --------
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 136 $ -- $ -- $ --
Distribution costs (Note 5) 45,493 33,946 31,462 6,864
Custodian fees (Note 4) 3,348 4,973 2,576 4,862
Registration costs 1,821 840 -- --
Legal and accounting services 5,632 4,243 6,698 3,463
Transfer and dividend disbursing agent fees 1,762 2,698 2,591 713
Amortization of organization expenses (Note 1D) 2,719 3,022 2,664 1,356
Printing and postage 9,793 6,412 4,459 4,327
Miscellaneous 1,178 -- 1,455 360
--------- --------- --------- --------
Total expenses $ 71,882 $ 56,134 $ 51,905 $ 21,945
Deduct allocation of expenses to the Administrator
(Note 4) 24,179 22,188 19,615 15,081
--------- --------- --------- --------
Net expenses $ 47,703 $ 33,946 $ 32,290 $ 6,864
--------- --------- --------- --------
Net investment income $ 231,621 $ 178,835 $ 168,860 $ 37,914
--------- --------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(245,784) $(130,673) $(189,650) $(43,354)
Financial futures contracts (59,656) (38,339) (36,892) (4,571)
--------- --------- --------- --------
Net realized loss on investments $(305,440) $(169,012) $(226,542) $(47,925)
Change in unrealized appreciation of investments and
financial future contracts 307,608 149,685 162,979 13,112
--------- --------- --------- --------
Net realized and unrealized gain (loss) $ 2,168 $ (19,327) $ (63,563) $(34,813)
--------- --------- --------- --------
Net increase in net assets from operations $ 233,789 $ 159,508 $ 105,297 $ 3,101
========= ========= ========= ========
</TABLE>
See notes to financial statements
16
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 142,233 $ 112,225 $ 183,487 $ 254,745
Net realized loss on investments (118,852) (137,638) (119,234) (240,259)
Change in unrealized appreciation of investments 158,005 125,129 103,779 255,527
----------- ----------- ---------- -----------
Net increase in net assets from operations $ 181,386 $ 99,716 $ 168,032 $ 270,013
----------- ----------- ---------- -----------
Distributions to shareholders (Note 2) --
From net investment income $ (142,233) $ (112,225) $ (183,487) $ (254,745)
In excess of net investment income (7,151) (3,110) (10,948) (14,453)
----------- ----------- ---------- -----------
Total distributions to shareholders $ (149,384) $ (115,335) $ (194,435) $ (269,198)
----------- ----------- ---------- -----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 2,579,387 $ 1,183,260 $2,108,441 $ 824,670
Net asset value of shares issued to shareholders
in payment of distributions declared 107,328 82,822 154,657 219,640
Cost of shares redeemed (2,665,165) (1,621,569) (837,950) (2,935,769)
----------- ----------- ---------- -----------
Increase (decrease) in net assets from Fund
share transactions $ 21,550 $ (355,487) $1,425,148 $(1,891,459)
----------- ----------- ---------- -----------
Net increase (decrease) in net assets $ 53,552 $ (371,106) $1,398,745 $(1,890,644)
NET ASSETS:
At beginning of year 2,411,658 2,342,213 3,214,915 6,366,070
----------- ----------- ---------- -----------
At end of year $ 2,465,210 $ 1,971,107 $4,613,660 $ 4,475,426
=========== =========== ========== ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 8,405 $ 6,215 $ 3,098 $ 14,311
=========== =========== ========== ===========
</TABLE>
See notes to financial statements
17
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 231,621 $ 178,835 $ 168,860 $ 37,914
Net realized loss on investments (305,440) (169,012) (226,542) (47,925)
Change in unrealized appreciation of investments 307,608 149,685 162,979 13,112
----------- ----------- ----------- ----------
Net increase in net assets from operations $ 233,789 $ 159,508 $ 105,297 $ 3,101
----------- ----------- ----------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (231,621) $ (178,835) $ (168,860) $ (37,914)
In excess of net investment income (11,629) (9,613) (7,552) (2,657)
----------- ----------- ----------- ----------
Total distributions to shareholders $ (243,250) $ (188,448) $ (176,412) $ (40,571)
----------- ----------- ----------- ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 1,422,669 $ 646,496 $ 694,753 $ 111,406
Net asset value of shares issued to shareholders
in payment of distributions declared 73,152 112,416 128,368 22,726
Cost of shares redeemed (2,749,588) (1,139,533) (2,833,146) (774,799)
----------- ----------- ----------- ----------
Decrease in net assets from Fund share
transactions $(1,253,767) $ (380,621) $(2,010,025) $ (640,667)
----------- ----------- ----------- ----------
Net decrease in net assets $(1,263,228) $ (409,561) $(2,081,140) $ (678,137)
NET ASSETS:
At beginning of year 4,951,539 3,716,957 4,701,973 1,146,758
----------- ----------- ----------- ----------
At end of year $ 3,688,311 $ 3,307,396 $ 2,620,833 $ 468,621
=========== =========== =========== ==========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 12,703 $ 5,631 $ 7,987 $ 34
=========== =========== =========== ==========
</TABLE>
See notes to financial statements
18
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 57,360 $ 41,385 $ 42,705 $ 138,309
Net realized gain (loss) on investments (21,618) (19,590) 288 (114,236)
Unrealized depreciation of investments (149,559) (86,579) (105,259) (301,280)
----------- ---------- ---------- ----------
Net decrease in net assets from operations $ (113,817) $ (64,784) $ (62,266) $ (277,207)
----------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (57,360) $ (41,385) $ (42,705) $ (138,309)
In excess of net investment income (10,784) (9,541) (11,630) (24,606)
----------- ---------- ---------- ----------
Total distributions to shareholders $ (68,144) $ (50,926) $ (54,335) $ (162,915)
----------- ---------- ---------- ----------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sales of shares $ 4,401,491 $3,305,061 $3,775,008 $7,607,237
Net asset value of shares issued to shareholders in
payment of distributions declared 46,302 31,649 36,571 123,118
Cost of shares redeemed (1,854,174) (878,787) (480,063) (924,163)
----------- ---------- ---------- ----------
Increase in net assets from Fund share transactions $ 2,593,619 $2,457,923 $3,331,516 $6,806,192
----------- ---------- ---------- ----------
Net increase in net assets $ 2,411,658 $2,342,213 $3,214,915 $6,366,070
NET ASSETS:
At beginning of period -- -- -- --
----------- ---------- ---------- ----------
At end of period $ 2,411,658 $2,342,213 $3,214,915 $6,366,070
=========== ========== ========== ==========
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (415) $ (2,228) $ (3,810) $ 65
=========== ========== ========== ==========
</TABLE>
* For the Classic Arizona, Classic Colorado, Classic Connecticut and Classic
Michigan Funds, the Statements of Changes in Net Assets are for the period
from the start of business, December 13, 1993, December 10, 1993, December 9,
1993, and December 7, 1993, respectively, to July 31, 1994.
See notes to financial statements
19
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 101,803 $ 67,465 $ 113,896 $ 25,192
Net realized loss on investments (15,685) (13,439) (54,944) (13,293)
Unrealized depreciation of investments (247,511) (161,128) (306,987) (44,901)
---------- ---------- ------------ ----------
Net decrease in net assets from operations $ (161,393) $ (107,102) $ (248,035) $ (33,002)
---------- ---------- ------------ ----------
Distributions to shareholders (Note 2) --
From net investment income $ (101,803) $ (67,465) $ (113,896) $ (25,192)
In excess of net investment income (18,488) (14,760) (21,849) (5,699)
---------- ---------- ------------ ----------
Total distributions to shareholders $ (120,291) $ (82,225) $ (135,745) $ (30,891)
---------- ---------- ------------ ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $5,944,730 $4,695,484 $ 6,980,797 $1,336,515
Net asset value of shares issued to shareholders in
payment of distributions declared 50,263 50,221 109,237 10,081
Cost of shares redeemed (761,770) (839,421) (2,004,281) (135,945)
---------- ---------- ----------- ----------
Increase in net assets from Fund share transactions $5,233,223 $3,906,284 $ 5,085,753 $1,210,651
---------- ---------- ----------- ----------
Net increase in net assets $4,951,539 $3,716,957 $ 4,701,973 $1,146,758
NET ASSETS:
At beginning of period -- -- -- --
---------- ---------- ----------- ----------
At end of period $4,951,539 $3,716,957 $ 4,701,973 $1,146,758
========== ========== =========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (875) $ (3,068) $ (2,598) $ (1,487)
========== ========== =========== ==========
</TABLE>
* For the Classic Minnesota, Classic New Jersey, Classic Pennsylvania and
Classic Texas Funds, the Statements of Changes in Net Assets are for the
period from the start of business, December 9, 1993, December 3, 1993,
December 3, 1993, and December 8, 1993, respectively, to July 31, 1994.
See notes to financial statements
20
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC ARIZONA FUND CLASSIC COLORADO FUND CLASSIC CONNECTICUT FUND
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.390 $ 10.000 $ 9.180 $ 10.000 $ 9.250 $ 10.000
------- -------- ------- -------- ------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.432 $ 0.253 $ 0.450 $ 0.256 $ 0.431 $ 0.246
Net realized and
unrealized gain (loss)
on investments 0.142 (0.563) 0.062++ (0.761) (0.044) (0.683)
------- -------- ------- -------- ------- --------
Total income (loss)
from operations $ 0.574 $ (0.310) $ 0.512 $ (0.505) $ 0.387 $ (0.437)
------- -------- ------- -------- ------- --------
LESS DISTRIBUTIONS:
From net investment
income $(0.432) $ (0.253) $(0.450) $ (0.256) $(0.431) $ (0.246)
In excess of net
investment income (0.022) (0.047) (0.012) (0.059) (0.026) (0.067)
------- -------- ------- -------- ------- --------
Total distributions $(0.454) $ (0.300) $(0.462) $ (0.315) $(0.457) $ (0.313)
------- -------- ------- -------- ------- --------
NET ASSET VALUE,
end of year $ 9.510 $ 9.390 $ 9.230 $ 9.180 $ 9.180 $ 9.250
======= ======== ======= ======== ======= ========
TOTAL RETURN (2) 6.44% (3.23)% 5.89% (5.22)% 4.49% (4.53)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of period
(000 omitted) $ 2,465 $ 2,412 $ 1,971 $ 2,342 $ 4,614 $ 3,215
Ratio of net expenses
to average daily
net assets (1) 1.60% 1.75%+ 1.26% 1.38%+ 1.48% 1.64%+
Ratio of net investment
income to average daily
net assets 4.73% 4.14%+ 5.04% 4.20%+ 4.76% 4.07%+
CLASSIC MICHIGAN FUND
-----------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994*
------------- --------------
<S> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.220 $ 10.000
------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.419 $ 0.261
Net realized and
unrealized gain (loss)
on investments 0.063 (0.733)
------- --------
Total income (loss)
from operations $ 0.482 $ (0.472)
------- --------
LESS DISTRIBUTIONS:
From net investment
income $(0.419) $ (0.261)
In excess of net
investment income (0.023) (0.047)
------- --------
Total distributions $(0.442) $ (0.308)
------- --------
NET ASSET VALUE,
end of year $ 9.260 $ 9.220
======= ========
TOTAL RETURN (2) 5.52% (4.88)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of period
(000 omitted) $ 4,475 $ 6,366
Ratio of net expenses
to average daily
net assets (1) 1.69% 1.69%+
Ratio of net investment
income to average daily
net assets 4.70% 4.18%+
** For the year ended July 31, 1995 and for the period from the start of
business, December 13, 1993, December 10, 1993, December 9, 1993 and December
7, 1993, respectively, to July 31, 1994 the operating expenses of the Funds
and the Portfolios may reflect a reduction of expenses by the Administrator
or Investment Adviser. Had such actions not been taken, net investment income
per share and ratios would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
CLASSIC ARIZONA FUND CLASSIC COLORADO FUND CLASSIC CONNECTICUT FUND
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
PER SHARE $ 0.376 $ 0.181 $ 0.368 $ 0.146 $ 0.379 $ 0.141
======= ======== ======= ======== ======= ========
RATIOS (As a percentage
of average daily
net assets):
Expenses(1) 2.21% 2.93%+ 2.18% 3.18%+ 2.05% 3.37%+
Net investment
income 4.12% 2.96%+ 4.12% 2.40%+ 4.19% 2.34%+
CLASSIC MICHIGAN FUND
-----------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994*
------------- --------------
<S> <C> <C>
NET INVESTMENT INCOME
PER SHARE $ 0.398 $ 0.235
======= ========
RATIOS (As a percentage
of average daily
net assets):
Expenses(1) 1.92% 2.11%+
Net investment
income 4.47% 3.76%+
+ Annualized.
(1) Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is computed on a nonannualized basis.
++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the
timing of sales of Fund shares and the amount of the per share realized and unrealized gains and losses at such time.
* For the Classic Arizona, Classic Colorado, Classic Connecticut and Classic Michigan Funds, the Financial Highlights
are for the period from the start of business, December 13, 1993, December 10, 1993, December 9, 1993, and December
7, 1993, respectively, to July 31, 1994.
</TABLE>
See notes to financial statements
21
<PAGE>
FINANCIAL STATEMENTS (Continued)
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC MINNESOTA FUND CLASSIC NEW JERSEY FUND CLASSIC PENNSYLVANIA FUND
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.370 $ 10.000 $ 9.300 $ 10.000 $ 9.180 $ 10.000
------- -------- ------- -------- ------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.440 $ 0.267 $ 0.452 $ 0.276 $ 0.447 $ 0.279
Net realized and
unrealized gain (loss)
on investments (0.048)++ (0.582) 0.004++ (0.640) (0.020) (0.766)
------- -------- ------- -------- ------- --------
Total income (loss)
from operations $ 0.392 $ (0.315) $ 0.456 $ (0.364) $ 0.467 $ (0.487)
------- -------- ------- -------- ------- --------
LESS DISTRIBUTIONS:
From net investment
income $(0.440) $ (0.267) $(0.452) $ (0.276) $(0.447) $ (0.279)
In excess of net
investment income (0.022) (0.048) (0.024) (0.060) (0.020) (0.054)
------- -------- ------- -------- ------- --------
Total distributions $(0.462) $ (0.315) $(0.476) $ (0.336) $(0.467) $ (0.333)
------- -------- ------- -------- ------- --------
NET ASSET VALUE,
end of year $ 9.300 $ 9.370 $ 9.280 $ 9.300 $ 9.180 $ 9.180
======= ======== ======= ======== ======= ========
TOTAL RETURN (2) 4.45% (3.29)% 5.20% (3.82)% 5.40% (5.04)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of period
(000 omitted) $ 3,688 $ 4,952 $ 3,307 $ 3,717 $ 2,621 $ 4,702
Ratio of net expenses
to average daily
net assets (1) 1.47% 1.51%+ 1.47% 1.64%+ 1.48% 1.66%+
Ratio of net investment
income to average daily
net assets 4.84% 4.33%+ 5.01% 4.30%+ 5.10% 4.43%+
CLASSIC TEXAS FUND
-----------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994*
------------- --------------
<S> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.230 $ 10.000
------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.455 $ 0.267
Net realized and
unrealized gain (loss)
on investments (0.008) (0.709)
------- --------
Total income (loss)
from operations $ 0.447 $ (0.442)
------- --------
LESS DISTRIBUTIONS:
From net investment
income $(0.455) $ (0.267)
In excess of net
investment income (0.032) (0.061)
------- --------
Total distributions $(0.487) $ (0.328)
------- --------
NET ASSET VALUE,
end of year $ 9.190 $ 9.230
======= ========
TOTAL RETURN (2) 5.16% (4.61)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of period
(000 omitted) $ 469 $ 1,147
Ratio of net expenses
to average daily
net assets (1) 1.01% 1.08%+
Ratio of net investment
income to average daily
net assets 5.25% 4.53%+
** For the year ended July 31, 1995 and for the period from the start of
business, December 9, 1993, December 3, 1993, December 3, 1993 and December
8, 1993, respectively, to July 31, 1994 the operating expenses of the Funds
and the Portfolios may reflect a reduction of expenses by the Administrator
or Investment Adviser. Had such actions not been taken, net investment income
per share and ratios would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
CLASSIC MINNESOTA FUND CLASSIC NEW JERSEY FUND CLASSIC PENNSYLVANIA FUND
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
PER SHARE $ 0.394 $ 0.209 $ 0.396 $ 0.184 $ 0.395 $ 0.235
======= ======== ======= ======== ======= ========
RATIOS (As a percentage
of average daily
net assets):
Expenses(1) 1.98% 2.45%+ 2.09% 3.08%+ 2.07% 2.36%+
Net investment
income 4.33% 3.38%+ 4.39% 2.86%+ 4.51% 3.73%+
CLASSIC TEXAS FUND
-----------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994*
------------- --------------
<S> <C> <C>
NET INVESTMENT INCOME
PER SHARE $ 0.254 $ 0.024
======= ========
RATIOS (As a percentage
of average daily
net assets):
Expenses(1) 3.33% 5.20%+
Net investment
income 2.93% 0.41%+
+ Annualized.
(1) Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is computed on a nonannualized basis.
++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the
timing of sales of Fund shares and the amount of the per share realized and unrealized gains and losses at such time.
* For the Classic Minnesota, Classic New Jersey, Classic Pennsylvania and Classic Texas Funds, the Financial Highlights
are for the period from the start of business, December 9, 1993, December 3, 1993, December 3, 1993, and December 8,
1993, respectively, to July 31, 1994.
</TABLE>
See notes to financial statements
22
<PAGE>
-------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Municipals Trust (the Trust) is an entity of the type commonly known
as a Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end investment management company. The Trust
presently consists of sixty-three Funds, eight of which are included in these
financial statements. They include EV Classic Arizona Tax Free Fund ("Classic
Arizona Fund"), EV Classic Colorado Tax Free Fund ("Classic Colorado Fund"), EV
Classic Connecticut Tax Free Fund ("Classic Connecticut Fund"), EV Classic
Michigan Tax Free Fund ("Classic Michigan Fund"), EV Classic Minnesota Tax Free
Fund ("Classic Minnesota Fund"), EV Classic New Jersey Tax Free Fund ("Classic
New Jersey Fund"), EV Classic Pennsylvania Tax Free Fund ("Classic Pennsylvania
Fund"), and EV Classic Texas Tax Free Fund ("Classic Texas Fund"). Each Fund
invests all of its investable assets in interests in a separate corresponding
open-end management investment company (a "Portfolio"), a New York Trust, having
the same investment objective as its corresponding Fund. The Classic Arizona
Fund invests its assets in the Arizona Tax Free Portfolio, the Classic Colorado
Fund invests its assets in the Colorado Tax Free Portfolio, the Classic
Connecticut Fund invests its assets in the Connecticut Tax Free Portfolio, the
Classic Michigan Fund invests its assets in the Michigan Tax Free Portfolio, the
Classic Minnesota Fund invests its assets in the Minnesota Tax Free Portfolio,
the Classic New Jersey Fund invests its assets in the New Jersey Tax Free
Portfolio, the Classic Pennsylvania Fund invests its assets in the Pennsylvania
Tax Free Portfolio, and the Classic Texas Fund invests its assets in the Texas
Tax Free Portfolio. The value of each Fund's investment in its corresponding
Portfolio reflects the Fund's proportionate interest in the net assets of that
Portfolio (1.7%, 4.2%, 2.3%, 2.4%, 4.4%, 0.8%, 0.5%, and 1.6% at July 31, 1995
for the Classic Arizona Fund, Classic Colorado Fund, Classic Connecticut Fund,
Classic Michigan Fund, Classic Minnesota Fund, Classic New Jersey Fund, Classic
Pennsylvania Fund and Classic Texas Fund, respectively). The performance of each
Fund is directly affected by the performance of its corresponding Portfolio. The
financial statements of each Portfolio, including the portfolio of investments,
are included elsewhere in this report and should be read in conjunction with
each Fund's financial statements. The policies are in conformity with generally
accepted accounting principles.
A. INVESTMENT VALUATION--Valuation of securities by the Portfolios is discussed
in Note 1 of the Portfolios' Notes to Financial Statements which are included
elsewhere in this report.
B. INCOME--Each Fund's net investment income consists of the Fund's pro rata
share of the net investment income of its corresponding Portfolio, less all
actual and accrued expenses of each Fund determined in accordance with generally
accepted accounting principles.
C. FEDERAL TAXES--Each Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable and tax-exempt income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is necessary. At July 31, 1995, the Funds, for
federal income tax purposes, had capital loss carryovers which will reduce
taxable income arising from future net realized gain on investments, if any, to
the extent permitted by the Internal Revenue Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be necessary
to relieve the Funds of any liability for federal income or excise tax.
The amounts and expiration dates of the capital loss carryovers are as follows:
<TABLE>
<CAPTION>
FUND AMOUNT EXPIRES
<S> <C> <C>
- -----------------------------------------------------------
Classic Arizona Fund $ 6,850 July 31, 2003
22,323 July 31, 2002
Classic Colorado Fund 10,896 July 31, 2003
18,440 July 31, 2002
Classic Connecticut Fund 4,986 July 31, 2002
Classic Michigan Fund 36,368 July 31, 2003
83,846 July 31, 2002
Classic Minnesota Fund 40,089 July 31, 2003
22,023 July 31, 2002
Classic New Jersey Fund 499 July 31, 2003
15,446 July 31, 2002
Classic Pennsylvania Fund 17,477 July 31, 2003
66,690 July 31, 2002
Classic Texas Fund 11,202 July 31, 2002
</TABLE>
Additionally, at July 31, 1995, net capital losses of $109,209, $116,023,
$101,664, $168,973, $236,478, $151,916, $182,207, and $42,625, for the Classic
Arizona Fund, Classic Colorado Fund, Classic Connecticut Fund, Classic Michigan
Fund, Classic Minnesota Fund, Classic New Jersey Fund, Classic Pennsylvania
Fund, and Classic Texas Fund, respectively, attributable to security
transactions incurred after October 31, 1994, are treated as arising on the
first day of the Fund's next taxable year.
Dividends paid by each Fund from net interest on tax-exempt municipal bonds
allocated from its corresponding Portfolio are not includable by shareholders as
gross income for federal income tax purposes because each Fund and Portfolio
intend to meet certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the Funds to pay
exempt-interest dividends. The portion of such interest, if any, earned on
private activity bonds issued after August 7, 1986, may be considered a tax
preference item to shareholders.
D. DEFERRED ORGANIZATION EXPENSES--Costs incurred by a Fund in connection with
its organization, including registration costs, are being amortized on the
straight-line basis over five years beginning on the date each Fund commenced
operations.
23
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
E. DISTRIBUTION COSTS--For book purposes, commissions paid on the sale of Fund
shares and other distribution costs are charged to operations. As a result of a
recent Internal Revenue Service ruling, the Funds changed their tax accounting
for commissions paid from charging the expenses to paid-in capital to charging
the expenses to operations. The change had no effect on either the Funds'
current yield or total return (Notes 2 and 5).
F. OTHER--Investment transactions are accounted for on a trade date basis.
- --------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of a Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. In addition, each Fund declares each day an amount equal to
the excess of tax basis net income over book basis net income, which amount is
reported for financial statement purposes as a distribution in excess of net
investment income. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of a Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Funds
distinguish between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary over distributions for financial statements
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital. During
the year ended July 31, 1995, $15,971, $11,553, $17,856, $28,699, $25,207,
$18,312, $18,137 and $4,178 were reclassified from distributions in excess of
net investment income to paid in capital, due to permanent differences between
book and tax accounting for distribution costs for the Classic Arizona Fund,
Classic Colorado Fund, Classic Connecticut Fund, Classic Michigan Fund, Classic
Minnesota Fund, Classic New Jersey Fund, Classic Pennsylvania Fund and Classic
Texas Fund, respectively. Net investment income, net realized gains and net
assets were not affected by these reclassifications.
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Funds' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
CLASSIC ARIZONA FUND CLASSIC COLORADO FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994* 1995 1994*
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales 284,699 450,458 131,906 344,445
Issued to shareholders electing
to receive payments of distributions in Fund
shares 11,797 4,933 9,251 3,407
Redemptions (294,142) (198,453) (182,871) (92,626)
--------- -------- -------- -------
Net increase (decrease) 2,354 256,938 (41,714) 255,226
========= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CONNECTICUT FUND CLASSIC MICHIGAN FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994* 1995 1994*
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales 233,930 394,622 91,974 775,309
Issued to shareholders electing
to receive payments of distributions in Fund
shares 17,289 3,916 24,410 13,136
Redemptions (95,969) (51,014) (323,457) (98,104)
------- ------- -------- -------
Net increase (decrease) 155,250 347,524 (207,073) 690,341
======= ======= ======== =======
</TABLE>
* For the period from the start of business December 13, December 10, December
9, and December 7, 1993 for Classic Arizona Fund, Classic Colorado Fund,
Classic Connecticut Fund and Classic Michigan Fund, respectively, to July 31,
1994.
24
<PAGE>
-------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC MINNESOTA FUND CLASSIC NEW JERSEY FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994* 1995 1994*
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales 154,778 602,377 71,024 483,105
Issued to shareholders electing
to receive payments of distributions in Fund
shares 8,048 5,274 12,393 5,341
Redemptions (294,858) (79,076) (126,356) (88,920)
-------- ------- -------- -------
Net increase (decrease) (132,032) 528,575 (42,939) 399,526
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CLASSIC PENNSYLVANIA FUND CLASSIC TEXAS FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994* 1995 1994*
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales 76,889 714,451 12,839 137,888
Issued to shareholders electing
to receive payments of distributions in Fund
shares 14,424 11,673 2,544 1,087
Redemptions (318,020) (213,994) (88,591) (14,765)
-------- -------- ------- -------
Net increase (decrease) (226,707) 512,130 (73,208) 124,210
======== ======== ======= =======
</TABLE>
* For the period from the start of business December 9, December 3, December 3,
and December 8, 1993 for Classic Minnesota Fund, Classic New Jersey Fund,
Classic Pennsylvania Fund and Classic Texas Fund, respectively, to July 31,
1994.
- --------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the Administrator of each Fund, but
receives no compensation. The Portfolios have engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 2 of the Portfolios' Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Funds, $18,453,
$17,169, $22,099, $12,579, $24,179, $22,188, $19,615 and $15,081 of expenses
related to the operation of the Classic Arizona Fund, Classic Colorado Fund,
Classic Connecticut Fund, Classic Michigan Fund, Classic Minnesota Fund, Classic
New Jersey Fund, Classic Pennsylvania Fund and Classic Texas Fund, respectively,
were allocated to EVM. Except as to Trustees of the Funds and the Portfolios who
are not members of EVM's or BMR's organization, officers and Trustees receive
remuneration for their services to each Fund out of such investment adviser fee.
Investors Bank & Trust Company (IBT), an affiliate of EVM, serves as custodian
to the Funds and the Portfolios. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based on
the average cash balances the Funds or the Portfolios maintain with IBT. Certain
of the officers and Trustees of the Funds and Portfolios are officers and
directors/trustees of the above organizations (Note 5).
- --------------------------------------------------------------------------------
(5) DISTRIBUTION PLAN
Each Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1
under the Investment Company Act of 1940. Effective January 30, 1995 the
Trustees of the Funds adopted an Amended Distribution Plan. The Plans require
the Funds to pay the principal underwriter, Eaton Vance Distributors, Inc.
(EVD), amounts equal to 1/365 of 0.75% of each Funds daily net assets, for
providing ongoing distribution services and facilities to the respective Fund. A
Fund will automatically discontinue payments to EVD during any period in which
there are no outstanding Uncovered Distribution Charges, which are equivalent to
the sum of (i) 6.25% of the aggregate amount received by the Fund for shares
sold plus (ii) distribution fees calculated by applying the rate of 1% over the
prevailing prime rate to the outstanding balance of Uncovered Distribution
Charges of EVD, reduced by the aggregate amount of contingent deferred sales
charges (see Note 6) and amounts theretofore paid to EVD. The amount payable to
EVD with respect to each day is accrued on such day as a liability of each Fund
and, accordingly, reduces the Fund's net assets. For the year ended July 31,
1995, Classic Arizona Fund, Classic Colorado Fund, Classic Connecticut Fund,
Classic Michigan Fund, Classic Minnesota Fund, Classic New Jersey Fund, Classic
Pennsylvania Fund and Classic Texas Fund, paid or accrued $22,532, $16,716,
$28,877, $40,685, $35,916, $26,799, $24,839 and $5,435, respectively, to or
payable to EVD representing 0.75% (annualized) of average daily net assets. At
July 31, 1995, the amount of Uncovered Distribution Charges of EVD calculated
under the Plans for Classic Arizona Fund, Classic Colorado Fund, Classic
Connecticut Fund, Classic Michigan Fund, Classic Minnesota Fund, Classic New
Jersey Fund,
25
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
Classic Pennsylvania Fund, and Classic Texas Fund were approximately $421,000,
$286,000, $346,000, $527,000, $419,000, $295,000, $474,000 and $81,000,
respectively.
In addition, the Plans permit the Funds to make monthly payments of service fees
to the Principal Underwriter, in amounts not expected to exceed 0.25% of each
Fund's average daily net assets for any fiscal year. The Trustees have initially
implemented the Plans by authorizing the Funds to make monthly service fee
payments to the Principal Underwriter in amounts not expected to exceed 0.20% of
each Fund's average daily net assets for any fiscal year. For the year ended
July 31, 1995, Classic Arizona Fund, Classic Colorado Fund, Classic Connecticut
Fund, Classic Michigan Fund, Classic Minnesota Fund, Classic New Jersey Fund,
Classic Pennsylvania Fund and Classic Texas Fund paid or accrued service fees to
or payable to EVD in the amount of $6,008, $4,458, $7,700, $10,781, $9,577,
$7,147, $6,623 and $1,429, respectively. Pursuant to the Amended Distribution
Plan, on sales made prior to January 30, 1995, EVD makes monthly service fee
payments to Authorized Firms in amounts anticipated to be equivalent to 0.20%,
annualized, of the assets maintained in each Fund by their customers. On sales
of shares made on January 30, 1995 and thereafter, EVD currently expects to pay
to an Authorized Firm a service fee at the time of sale equal to 0.20% of the
purchase price of the shares sold by such authorized Firm and monthly payments
of service fees in amounts not expected to exceed 0.20% per annum of the Funds'
average daily net assets based on the value of Fund shares sold by such
authorized Firm and remaining outstanding for at least one year. During the
first year after a purchase of Fund shares, EVD will retain the service fee as
reimbursement for the service fee payment made to the Authorized Firm at the
time of sale. Service fee payments are made for personal services and/or
maintenance of shareholder accounts. Service fees paid to EVD and Authorized
Firms are separate and distinct from the sales commissions and distribution fees
payable by a Fund to EVD, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges of
EVD.
Certain of the officers and Trustees of the Funds are officers or directors of
EVD.
- --------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGES
For shares purchased on or after January 30, 1995, a contingent deferred sales
charge (CDSC) of 1% is imposed on any redemption of Fund shares made within one
year of purchase. Generally, the CDSC is based upon the lower of the net asset
value at date of redemption or date of purchase. No charge is levied on shares
acquired by reinvestment of dividends or capital gains distributions. No CDSC is
levied on shares which have been sold to EVD or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Funds'
Distribution Plans. CDSC received when no Uncovered Distribution Charges exist
will be credited to the Funds. For the year ended July 31, 1995, EVD received
approximately $600, $200, $50 and $400 of CDSC paid by shareholders of Classic
Arizona Fund, Classic Colorado Fund, Classic Michigan Fund, and Classic
Pennsylvania Fund, respectively.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding Portfolio
for the year ended July 31, 1995 were as follows:
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Increases $2,598,994 $1,244,281 $2,158,035 $1,036,188
Decreases 3,513,354 1,716,187 963,488 3,249,657
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Increases $1,717,391 $ 755,436 $ 741,499 $ 153,807
Decreases 3,007,384 1,321,503 3,002,750 845,661
</TABLE>
26
<PAGE>
-------
Independent Auditor's Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF EATON VANCE MUNICIPALS TRUST:
We have audited the accompanying statements of assets and liabilities of EV
Classic Arizona Tax Free Fund, EV Classic Colorado Tax Free Fund, EV Classic
Connecticut Tax Free Fund, EV Classic Michigan Tax Free Fund, EV Classic
Minnesota Tax Free Fund, EV Classic New Jersey Tax Free Fund, EV Classic
Pennsylvania Tax Free Fund, and EV Classic Texas Tax Free Fund (the Funds)
(certain of the series of Eaton Vance Municipals Trust) as of July 31, 1995, the
related statements of operations for the year then ended, and the statements of
changes in net assets and the financial highlights for the year ended July 31,
1995 and the period from the start of business to July 31, 1994. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned funds of Eaton Vance Municipals Trust at July 31, 1995, the
results of their operations, the changes in their net assets and their financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
AUGUST 25, 1995
27
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
Arizona Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 4.8%
A1 AA $1,000 Arizona Board of Regents,
Arizona State University,
5.90%, 7/01/09 $ 1,015,710
NR AAA 1,000 City of Glendale,
Thunderbird Graduate
School, CLEE, 7.125%,
7/01/20 1,099,650
A1 AA 1,250 Arizona Board of Regents,
University of Arizona,
6.25%, 6/01/11 1,283,100
NR NR 2,000 Arizona Educational Loan
Marketing Corporation,
(AMT) 6.30%, 12/01/08 1,921,460
A NR 1,500 Student Loan Acquisition
Authority of Arizona,
(AMT) 7.625%, 5/01/10 1,630,230
------------
$ 6,950,150
------------
ESCROWED - 6.2%
Aaa AA $2,500 Arizona Transportation
Board Highway, 6.50%,
7/01/11 $ 2,797,850
Aaa AAA 7,500 Maricopa County, Single
Family Mortgage, 0%,
2/01/16 2,145,825
NR AA 2,500 City of Phoenix, Street &
Highway User, 6.25%,
7/01/11 2,696,950
Baa1 AAA 630 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 705,039
NR NR 500 City of Scottsdale,
Westminster Village,
Multifamily Housing,
10.00%, 6/01/17 565,310
------------
$ 8,910,974
------------
GENERAL OBLIGATION - 7.9%
Aa AA+ $1,500 City of Phoenix, 6.375%,
7/01/13 $ 1,556,085
Aa AA+ 1,000 City of Phoenix, 5.55%,
7/01/09 1,001,860
Aa AA+ 3,000 City of Phoenix, 5.10%,
7/01/13 2,774,070
Aa1 AA+ 1,000 City of Scottsdale, 5.50%,
7/01/12 957,500
NR A 2,000 City of Phoenix, Tatum
Ranch Community, 6.875%,
7/01/16 2,106,600
Aa AA+ 1,000 City of Tempe, 5.25%,
7/01/15 925,490
Aa AA 1,300 Scottsdale Unified School
District No. 48 of
Maricopa County, 4.60%,
7/01/11 1,146,665
Baa1 A 1,000 Commonwealth of Puerto
Rico, 5.75%, 7/01/16 953,220
------------
$ 11,421,490
------------
HOSPITALS - 3.2%
NR BBB $1,130 Arizona Health Facilities
Authority, Phoenix
Memorial Hospital, 8.125%,
6/01/12 $ 1,202,376
NR BBB 1,250 Arizona Health Facilities
Authority, Phoenix
Memorial Hospital, 8.20%,
6/01/21 (2) 1,331,413
Baa BB+ 1,000 Maricopa County, Sun
Health Corporation,
8.125%, 4/01/12 1,065,980
<PAGE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 915 City of Winslow, Winslow
Memorial Hospital Project,
9.50%, 6/01/22 1,003,535
------------
$ 4,603,304
------------
HOUSING - 5.7%
NR A $2,000 Maricopa County, Laguna
Point Apartments,
Multifamily Housing,
6.75%, 7/01/09 $ 1,990,440
NR AAA 2,775 City of Phoenix, Chris
Ridge Village Project, FHA
Insured Mortgage Loan,
6.80%, 11/01/25 2,812,546
NR AA 1,000 City of Phoenix, Woodstone
and Silver Springs
Apartments, Multifamily
Housing, (Asset Guaranty),
6.25%, 4/01/23 989,500
Aaa NR 1,500 City of Phoenix, Meadow
Glen Apartments,
Multifamily Housing, (GNMA
Collateralized) 5.80%,
8/20/28 1,367,325
NR AAA 1,000 City of Tempe, Multifamily
Housing, Quadrangle
Village Apartments, FHA
Insured Mortgage Loan,
6.25%, 6/01/26 982,450
------------
$ 8,142,261
------------
INDUSTRIAL DEVELOPMENT
REVENUE / IDB - 3.7%
A1 NR $1,000 City of Casa Grande,
Pollution Control,
Frito-Lay Inc., 6.60%,
12/01/10 $ 1,059,800
A2 A 4,500 Greenlee County, Pollution
Control, Phelps Dodge
Corporation, 5.45%,
6/01/09 4,318,155
------------
$ 5,377,955
------------
INSURED GENERAL OBLIGATION - 8.6%
Aaa AAA $1,000 Peoria Unified School
District No. 11 of
Maricopa County, (MBIA)
6.40%, 7/01/10 $ 1,051,570
Aaa AAA 1,300 Alhambra Elementary School
District No. 68 of
Maricopa County, (AMBAC)
5.50%, 7/01/07 1,322,776
Aaa AAA 1,000 Alhambra Elementary School
District No. 68 of
Maricopa County, (AMBAC)
5.625%, 7/01/13 997,140
Aaa AAA 1,000 Alhambra Elementary School
District No. 68 of
Maricopa County, (AMBAC)
5.125%, 7/01/13 921,170
Aaa AAA 1,000 Paradise Valley Unified
School District No. 69 of
Maricopa County, (AMBAC),
5.00%, 7/01/09 929,690
</TABLE>
33
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL OBLIGATION -
(CONTINUED)
Aaa AAA 1,000 Chandler Unified School
District No. 80 of
Maricopa County, (FGIC)
6.40%, 7/01/10 1,047,450
Aaa AAA 1,000 Pima County, School
District No. 1, Tucson
Project, (FGIC) 5.40%,
7/01/13 949,340
Aaa AAA 1,750 Pima County, School
District No. 1, Tucson
Project, (FGIC) 5.875%,
7/01/14 1,742,965
Aaa AAA 1,000 Commonwealth of Puerto
Rico, (FSA) 7/01/20 (1) 963,790
Aaa AAA 1,500 Commonwealth of Puerto
Rico, (AMBAC) 7/01/15 (1) 1,492,485
Aaa AAA 1,000 Commonwealth of Puerto
Rico, (FSA) 7/01/22 (1) 1,003,110
------------
$ 12,421,486
------------
INSURED HOSPITALS - 13.1%
Aaa AAA $2,000 Maricopa County, Hospital
District No.1, (FGIC)
6.125%, 6/01/15 (2) $ 2,021,080
Aaa AAA 3,500 Maricopa County, Catholic
Healthcare West, (MBIA)
5.625%, 7/01/23 3,336,655
Aaa AAA 2,000 Maricopa County, Samaritan
Health, (MBIA) 7.00%,
12/01/16 2,280,640
Aaa AAA 2,000 Mohave County, Hospital
District No.1, Kingman
Regional Medical Center,
(FGIC) 6.50%, 6/01/15 2,084,440
Aaa AAA 1,500 Pima County, Tucson
Medical Center, (MBIA)
6.375%, 4/01/12 1,550,700
Aaa AAA 3,500 Pima County, Tucson
Medical Center, (MBIA)
5.00%, 4/01/15 3,098,795
Aaa AAA 1,000 Pima County, Carondelet
Health Care Corporation,
(MBIA) 5.25%, 7/01/11 938,350
Aaa AAA 1,000 Pima County, Carondelet
Health Care Corporation,
(MBIA) 5.25%, 7/01/12 930,980
Aaa AAA 2,000 University of Arizona
Medical Center
Corporation, (MBIA) 5.00%,
7/01/13 1,802,480
Aaa AAA 1,000 University of Arizona
Medical Center
Corporation, (MBIA) 5.00%,
7/01/21 869,300
------------
$ 18,913,420
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOUSING - 1.3%
Aaa AAA $1,975 City of Sierra Vista,
Mountain View Apartments,
FHA Insured Mortgage,
(MBIA) 5.75%, 1/01/24 $ 1,849,331
------------
INSURED UTILITIES - 5.9%
Aaa AAA $4,000 Navajo County, Pollution
Control, Arizona Public
Service Co., (AMBAC)
5.50%, 8/15/28 $ 3,687,000
Aaa AAA 3,500 Pima County, Irvington
Power Project, (FSA)
7.25%,
7/15/10 (2) 3,842,300
Aaa AAA 1,000 Arizona State Power
Authority, Hoover Uprating
Project, (MBIA) 5.25%,
10/01/17 909,770
------------
$ 8,439,070
------------
INSURED MISCELLANEOUS - 0.7%
Aaa AAA $1,000 Maricopa County Stadium
District, (MBIA) 5.50%,
7/01/13 $ 956,070
------------
INSURED SPECIAL TAX - 1.3%
Aaa AAA $1,750 City of Phoenix, Civic
Improvement Excise Tax,
(MBIA) 6.60%, 7/01/08 $ 1,895,793
------------
INSURED TRANSPORTATION - 0.7%
Aaa AAA $1,000 City of Tucson, Junior
Lien Street and Highway,
(MBIA) 5.50%, 7/01/12 $ 952,370
------------
INSURED WATER & SEWER - 1.4%
Aaa AAA $1,000 City of Chandler, Water
and Sewer, (FGIC) 6.25%,
7/01/13 $ 1,024,610
Aaa AAA 1,200 City of Phoenix, Civic
Improvement Wastewater
Systems, (MBIA) 5.00%,
7/01/18 1,058,340
------------
$ 2,082,950
------------
TRANSPORTATION - 6.7%
Aa AA $1,000 State of Arizona,
Transportation Board &
Highway, 5.00%, 7/01/10 $ 928,360
Aa AA 2,000 State of Arizona,
Transportation Board &
Highway, 5.10%, 7/01/11 1,851,780
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/01/20 881,340
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/01/21 879,370
</TABLE>
29
<PAGE>
-------
ARIZONA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - (CONTINUED)
A1 A+ 2,250 City of Tucson, Arizona,
Senior Lien Street and
Highway, 5.50%, 7/01/09 2,173,523
NR BBB 3,000 Guam Airport Authority,
(AMT) 6.70%, 10/01/23 2,999,610
------------
$ 9,713,983
------------
UTILITIES - 20.3%
Baa2 BBB $1,500 Coconino County, Pollution
Control, Nevada Power Co.,
7.125%, 10/01/06 $ 1,502,730
Ba2 BB 2,500 Maricopa County, Pollution
Control, Public Service
Company of New Mexico,
Palo Verde Project,
6.375%, 8/15/23 2,376,600
Baa1 BBB 5,300 Navajo County, Pollution
Control, Arizona Public
Service Co., 5.875%,
8/15/28 4,932,975
NR AAA 1,000 Mohave County, Citizens
Utilities Company Project,
(AMT) 5.80%, 11/15/28 958,740
A A+ 1,000 Puerto Rico Telephone
Authority, 1/01/20 (1) 1,009,540
A1 AA- 1,000 Central Arizona Water
Conservation District,
Central Arizona Project,
5.50%, 11/01/09 989,209
NR BBB 1,200 Guam Power Authority,
6.30%, 10/01/12 1,193,652
NR BBB 1,250 Guam Power Authority,
6.30%, 10/01/22 1,218,162
Baa1 A- 1,500 Puerto Rico Electric Power
Authority, 7.00%, 7/01/07 1,603,410
Baa1 A- 5,000 Puerto Rico Electric Power
Authority, 5.00%, 7/01/12 4,429,250
Baa1 A- 370 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 401,210
Aa AA 1,750 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 5.50%, 1/01/28 1,600,008
Aa AA 3,500 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 5.50%, 1/01/25 3,227,735
Aa AA 1,000 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 6.25%, 1/01/27 1,012,300
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA 1,000 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 5.25%, 1/01/13 917,570
Aa AA 2,000 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 5.25%, 1/01/19 1,796,320
------------
$ 29,169,411
------------
WATER & SEWER - 8.5%
Aa AA+ $2,000 State of Arizona,
Wastewater Management
Authority, 6.80%, 7/01/11
(2) $ 2,163,140
A1 A 1,100 City of Phoenix, Water
System, 5.00%, 7/01/18 966,405
A1 A 5,000 City of Phoenix, Water
System, 4.75%, 7/01/23 4,140,550
A1 AA- 1,000 City of Phoenix, Water
System, 5.40%, 7/01/14 942,330
A1 A+ 1,000 City of Tucson, Water
System, 6.50%, 7/01/16 1,046,420
A1 A+ 1,000 City of Tucson, Water
System, 5.50%, 7/01/08 1,019,410
A1 A+ 1,000 City of Tucson, Water
System, 5.50%, 7/01/09 989,410
A1 A+ 1,000 City of Tucson, Water
System, 5.50%, 7/01/10 979,050
------------
$ 12,246,715
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $140,218,111) $144,046,733
----------
----------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Arizona
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 36.6% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 0.9% to
16.3% of total investments.
See notes to financial statements
30
<PAGE>
-------
Colorado Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 2.0%
A1 A+ $1,000 City of Colorado Springs,
Colorado College Project,
5.125%, 6/01/16 $ 902,140
-----------
ESCROWED - 1.6%
Aaa AAA $4,000 Colorado Health Facilities
Authority, Liberty Heights
Project, (FSA) 0%, 7/15/24 $ 538,160
NR AAA 150 Puerto Rico Highway and
Transportation Authority,
6.50%, 7/01/22 169,296
-----------
$ 707,456
-----------
GENERAL OBLIGATION - 9.4%
A NR $ 500 City of Aspen, 5.625%,
4/15/14 $ 467,330
Aa AA 1,000 City and County of Denver,
5.10%, 9/01/09 938,710
Aa AA 1,000 Boulder and Gilpin
Counties, Boulder Valley
School District, 6.30%,
12/01/13 1,032,600
NR A 750 Larimer, Weld & Boulder
Counties, Thompson School
District, 6.05%, 12/15/08 770,422
Baa1 A 1,000 Commonwealth of Puerto
Rico, 5.75%, 7/01/15 959,900
NR NR 100 Virgin Islands Public
Finance Authority, 7.25%,
10/01/18 103,155
-----------
$ 4,272,117
-----------
HOSPITALS - 10.4%
Baa1 BBB+ $1,250 Boulder County, Longmont
United Hospital, 5.875%,
12/01/20 $ 1,160,750
Baa BBB 2,050 Colorado Health Facilities
Authority, Rocky Mountain
Adventist Healthcare,
6.625%, 2/01/13 1,999,304
A NR 250 Colorado Health Facilities
Authority, Craig Hospital,
5.375%, 12/01/13 228,340
A NR 500 Colorado Health Facilities
Authority, Craig Hospital,
5.50%, 12/01/21 449,450
Baa1 BBB+ 250 Colorado Health Facilities
Authority, Swedish Medical
Center, 6.80%, 1/01/23 252,050
NR BBB- 650 Colorado Health Facilities
Authority, National Jewish
Center, 6.875%, 2/15/12 628,524
-----------
$ 4,718,418
-----------
HOUSING - 11.6%
NR NR $ 350 Lake Creek Affordable
Housing Corporation,
Multifamily Housing, 8.00%,
12/01/23 $ 352,786
NR AAA 1,000 City of Lakewood, Multi
Family Housing FHA Insured
Mortgage Loan, (AMT) 6.65%,
10/01/25 1,004,010
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa NR 1,975 Colorado Housing and
Finance Authority, Single
Family Access Program,
7.90%, 12/01/24 2,163,810
Aa NR 990 Colorado Housing and
Finance Authority, Single
Family Access Program,
8.00%, 12/01/24 (3) 1,093,682
Aa NR 600 Colorado Housing and
Finance Authority, Single
Family Housing, (AMT)
7.65%, 12/01/25 (2) 651,786
-----------
$ 5,266,074
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 3.4%
A2 NR $1,750 Puerto Rico Pollution
Control, American Home
Products Corporation,
5.10%, 12/01/18 $ 1,541,488
-----------
INSURED EDUCATION - 2.1%
Aaa AAA $1,000 Board of Trustees of the
State Colleges in Colorado,
Adams State College of
Colorado Project, (MBIA)
5.70%, 5/15/14 $ 976,260
-----------
INSURED GENERAL OBLIGATION - 11.4%
Aaa AAA $ 500 City and County of Denver
School District #1, (MBIA)
5.125%, 12/01/12 $ 455,225
Aaa AAA 1,000 Douglas and Elbert
Counties, Douglas County
School District, (MBIA)
6.40%, 12/15/11 1,050,140
Aaa AAA 1,750 Eagle, Garfield & Routt
Counties, School District
No. RE 50J, (FGIC) 6.30%,
12/01/12 1,827,648
Aaa AAA 1,000 Poudre School District R-1
of Larimer County, (MBIA)
6.50%, 12/15/11 1,060,090
Aaa AAA 750 Pueblo County School
District No.70, Pueblo
Rural, (AMBAC) 6.40%,
12/01/14 778,703
-----------
$ 5,171,806
-----------
INSURED HOSPITALS - 15.0%
Aaa AAA $2,500 Colorado Health Facilities
Authority, Sisters of
Charity, (MBIA) 5.25%,
5/15/14 $ 2,292,825
Aaa AAA 2,000 Colorado Health Facilities
Authority, Boulder
Community Hospital, (MBIA)
5.875%, 10/01/23 1,942,220
Aaa AAA 1,000 Colorado Springs Hospital,
(MBIA) 6.00%, 12/15/24 980,970
Aaa AAA 500 City and County of Denver,
Childrens Hospital, (FGIC)
6.00%, 10/01/15 504,490
</TABLE>
31
<PAGE>
-------
COLORADO TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS - (CONTINUED)
Aaa AAA 1,000 Pueblo County, Parkview
Episcopal Medical Center,
(MBIA) 7.00%, 9/01/09 1,076,760
-----------
$ 6,797,265
-----------
INSURED HOUSING - 2.3%
Aaa AAA $1,000 City of Thornton, SCA
Realty MFMR, (FSA) 7.10%,
1/01/30 (2) $ 1,025,850
-----------
INSURED UTILITIES - 0.7%
Aaa AAA $ 300 Puerto Rico Electric Power
Authority, (FSA) 7/01/03
(1) $ 328,491
-----------
INSURED SPECIAL TAX - 4.5%
Aaa AAA $2,000 City of Broomfield Sales
and User Tax, (AMBAC)
6.30%, 12/01/14 $ 2,061,200
-----------
INSURED TRANSPORTATION - 4.3%
Aaa AAA $2,100 City and County of Denver,
Colorado Airport System,
(MBIA) 5.60%, 11/15/20 $ 1,967,889
-----------
INSURED WATER & SEWER - 1.9%
Aaa AAA $1,000 Municipal Subdistrict,
Northern Colorado Water
Conservancy District,
(AMBAC) 5.00%, 12/01/17 $ 883,370
-----------
TRANSPORTATION - 11.1%
Baa3 BB $1,500 City and County of Denver,
Colorado Special Facilities
Airport System, United
Airlines, (AMT) 6.875%,
10/01/32 $ 1,501,320
Baa BB 500 City and County of Denver,
Colorado Airport System,
(AMT) 6.75%, 11/15/22 499,930
Baa BB 500 City and County of Denver,
Colorado Airport System,
(AMT) 7.50%, 11/15/23 534,105
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR BBB 100 Guam Airport Authority,
(AMT) 6.70%, 10/01/23 99,987
Baa1 A 2,750 Puerto Rico Highway and
Transportation Authority,
5.25%, 07/01/20 2,423,685
-----------
$ 5,059,027
-----------
UTILITIES - 8.3%
Aa AA $1,500 City of Colorado Springs,
Utilities System, 5.125%,
11/15/23 (4) $ 1,313,010
NR BBB 350 Guam Power Authority,
5.25%, 10/01/13 310,544
NR BBB 500 Guam Power Authority,
6.625%, 10/01/14 506,825
Aa A+ 1,750 Platte River Power
Authority, 5.50%, 6/01/18 1,627,465
-----------
$ 3,757,844
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $44,277,269) $45,436,695
---------
---------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) When-issued security.
(3) Security has been segregated to cover when-issued securities.
(4) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by Colorado
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 45.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.1% to 30.0% of total investments.
See notes to financial statements
32
<PAGE>
-------
Connecticut Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 10.8%
Baa BBB $1,000 Connecticut HEFA,
University of Hartford,
6.75%, 7/01/12 $ 975,350
Baa BBB 5,500 Connecticut HEFA,
University of Hartford,
6.80%, 7/01/22 5,302,660
NR BBB- 6,175 Connecticut HEFA,
Quinnipiac College, 6.00%,
7/01/23 5,497,294
NR BBB- 1,000 Connecticut HEFA, Sacred
Heart University, 6.80%,
7/01/12 1,045,400
NR A- 1,000 Connecticut HEFA, Sacred
Heart University, 5.80%,
7/01/23 842,940
NR A 1,125 Connecticut HEFA, Taft
School, 5.40%, 7/01/20 1,011,476
Aaa AAA 6,000 Connecticut HEFA, Yale
University, 5.929%,
6/10/30 5,929,680
------------
$ 20,604,800
------------
ESCROWED TO MATURITY - 2.4%
NR AA- $ 650 State of Connecticut
Government Obligations
Bonds, 6.875%, 7/15/10 $ 729,775
NR AAA 800 Connecticut Special Tax
Obligation Bonds,
Transportation
Infrastructure Purposes,
6.75%, 6/01/11 906,304
A1 AA- 645 Connecticut Special Tax
Obligation Bonds,
Transportation
Infrastructure Purposes,
6.50%, 7/01/09 706,475
A1 AA- 300 Amity RSD No. 5 Bonds,
6.80%, 6/15/08 326,166
Baa BBB 1,630 City of Stratford,
Government Obligations
Bonds, 7.30%, 3/01/12 1,869,561
------------
$ 4,538,281
------------
GENERAL OBLIGATION - 6.1%
Aa1 NR $ 350 City of Avon, 4.60%,
1/15/07 $ 327,159
Aa NR 525 Town of Guilford, 4.75%,
11/15/10 476,017
Aa NR 525 Town of Guilford, 4.75%,
11/15/11 471,466
A AA- 2,000 City of Bridgeport,
6.125%, 3/01/05 2,073,380
Aa AA- 1,750 State of Connecticut,
Capital Appreciation
Bonds, 0%, 11/01/09 781,515
AA AA- 1,000 State of Connecticut,
5.50%, 3/15/10 983,190
AA AA- 500 State of Connecticut,
5.50%, 3/15/11 491,235
Aa AA 1,270 City of Danbury, 4.50%,
2/01/14 1,062,634
Aa1 NR 650 City of Farmington, 5.70%,
1/15/11 657,306
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR BBB 500 Government of Guam, 5.40%,
11/15/18 431,735
Aa1 AA+ 925 City of Norwalk Maritime
Center Project Bonds,
6.05%, 2/01/09 952,574
Baa1 A 2,000 Puerto Rico PBA Bonds,
5.50%, 7/01/21 1,832,480
NR NR 1,000 Virgin Islands PFA Revenue
Bonds, 7.25%, 10/01/18 1,031,550
------------
$ 11,572,241
------------
HEALTH CARE (NON-HOSPITAL) - 12.5%
A1 AA- $ 600 Connecticut HEFA, Nursing
Home Program NHP (Noble
Horizons), 6.00%, 11/01/22 $ 586,554
A1 AA- 1,000 Connecticut HEFA, NHP
(Jewish Home-Fairfield),
6.25%, 11/01/20 1,008,720
A1 AA- 655 Connecticut HEFA, NHP (St.
Camillus), 6.25%, 11/01/18 661,766
A1 AA- 3,250 Connecticut HEFA, NHP (St.
Joseph's Manor) 6.25%,
11/01/16 3,283,573
A1 AA- 1,365 Connecticut HEFA, NHP
(Sharon Healthcare) 6.25%,
11/01/14 1,385,762
Aa3 NR 9,000 Connecticut Development
Authority Health Care
Bonds (Duncaster), 6.75%,
9/01/15 9,301,230
A1 AA- 720 Connecticut HEFA, NHP
(Highland View), 7.00%,
11/01/07 787,975
A1 AA- 335 Connecticut HEFA, NHP
(Wadsworth Glen), 7.00%,
11/01/07 366,627
A1 AA- 2,000 Connecticut HEFA, NHP
(Wadsworth Glen), 7.50%,
11/01/16 2,210,800
A1 AA- 3,000 Connecticut HEFA, NHP
(Windsor), 7.125%,
11/01/14 3,254,820
NR A- 1,000 Puerto Rico I. M. E. (Dr.
Pila Hospital), (FHA)
7.85%, 8/01/28 1,078,190
------------
$ 23,926,017
------------
HOSPITALS - 6.0%
NR A- $3,770 Connecticut HEFA, William
W. Backus Hospital,
6.375%, 7/01/22 $ 3,748,096
Baa1 NR 9,150 Connecticut HEFA, Griffin
Hospital, 5.75%, 7/01/23 7,814,009
------------
$ 11,562,105
------------
HOUSING - 8.2%
Aa AA $ 100 Connecticut HFA Mortgage
Revenue Bonds (MRB),
7.40%, 11/15/99 $ 102,965
</TABLE>
33
<PAGE>
-------
CONNECTICUT TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aa AA 1,400 Connecticut HFA, MRB,
7.20%, 11/15/01 1,473,556
Aa AA 200 Connecticut HFA, MRB,
7.00%, 11/15/09 207,336
Aa AA 6,200 Connecticut HFA, MRB,
6.70%, 11/15/12 6,336,524
Aa AA 250 Connecticut HFA, MRB,
6.55%, 11/15/13 252,910
Aa AA 1,000 Connecticut HFA, MRB,
5.85%, 11/15/16 955,420
Aa AA 120 Connecticut HFA, MRB,
7.625%, 11/15/17 123,988
Aa AA 1,700 Connecticut HFA, MRB,
6.35%, 5/15/17 1,674,177
Aa AA 2,500 Connecticut HFA, MRB,
6.60%, 11/15/23 2,511,700
Aa AA 2,000 Connecticut HFA, MRB,
6.75%, 11/15/23 2,030,000
------------
$ 15,668,576
------------
INDUSTRIAL DEVELOPMENT/POLLUTION
CONTROL REVENUES - 3.0%
Aaa AAA $1,000 Connecticut Development
Authority (Pfizer Inc.),
6.55%, 2/15/13 $ 1,071,700
Aa AA- 2,000 Connecticut Development
Authority (Economic
Development Projects),
Revenue Bonds, 6.00%,
11/15/08 2,066,960
A1 A+ 2,000 Connecticut Development
Authority (New England
Power Company Project),
7.25%, 10/15/15 2,142,580
Baa1 A 500 Puerto Rico Port Authority
(American Airlines),
6.30%, 6/01/23 485,275
------------
$ 5,766,515
------------
INSURED AIRPORTS - 4.9%
Aaa AAA $8,200 State of Connecticut
Airport Revenue Bonds,
Bradley International
Airport, (FGIC), 7.65%,
10/01/12 $ 9,315,364
------------
INSURED COLLEGE AND UNIVERSITY - 3.9%
Aaa AAA $ 725 Connecticut HEFA,
Fairfield University
(MBIA), 5.00%, 7/01/18 $ 636,129
Aaa AAA 1,200 Connecticut HEFA,
Connecticut College
(MBIA), 6.625%, 7/01/11 1,272,948
Aaa AAA 2,000 Connecticut HEFA, Trinity
College (MBIA), 6.00%,
7/01/22 2,003,960
Aaa AAA 1,555 Connecticut HEFA, Choate
Rosemary College (MBIA),
6.80%, 7/01/15 (1) 1,683,661
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 750 Connecticut HEFA, Loomis
Chafee (MBIA), 6.00%,
7/01/15 760,793
Aaa AAA 1,000 Connecticut HEFA, Loomis
Chafee (MBIA), 6.00%,
7/01/25 1,005,850
------------
$ 7,363,341
------------
INSURED MISCELLANEOUS - 0.8%
Aaa AAA $1,750 Connecticut Municipal
Electric Energy
Cooperative Bonds (MBIA),
5.00%, 1/01/18 $ 1,549,520
------------
INSURED GOVERNMENT OBLIGATIONS - 4.3%
Aaa AAA $1,220 Town of Bethel, (MBIA),
6.50%, 2/15/09 $ 1,340,243
Aaa AAA 2,000 City of Waterbury, Tax
Revenue Bonds (FGIC),
5.375%, 4/15/08 1,984,380
Aaa AAA 740 Town of Stratford, (MBIA),
6.60%, 3/01/11 800,924
Aaa AAA 1,000 City of New Britain,
(MBIA), 6.00%, 3/01/12 1,026,430
Aaa AAA 1,000 Town of Plainfield,
(MBIA), 6.375%, 8/01/11 1,045,430
Aaa AAA 2,120 Puerto Rico Public
Improvement Bonds (MBIA),
5.25%, 7/01/18 1,955,446
------------
$ 8,152,853
------------
INSURED HEALTHCARE - 1.3%
A1 AA- $1,735 Connecticut HEFA, NHP (St.
Joseph's Living Center),
(AMBAC), 5.10%, 11/01/19 $ 1,528,604
A1 AA- 1,030 Connecticut HEFA, NHP (St.
Joseph's Learning Center)
(AMBAC), 5.00%, 11/01/09 951,699
------------
$ 2,480,303
------------
INSURED HOSPITAL - 10.0%
Aaa AAA $1,000 Connecticut HEFA,
Bridgeport Hospital
(MBIA), 6.625%, 7/01/18 $ 1,051,740
Aaa AAA 6,750 Connecticut HEFA, St.
Francis Hospital (FGIC),
5.00%, 7/01/23 5,808,172
Aaa AAA 1,500 Connecticut HEFA, Lawrence
and Memorial Hospital
(MBIA), 5.00%, 7/01/13 1,345,740
Aaa AAA 5,750 Connecticut HEFA, Lawrence
and Memorial Hospital
(MBIA), 5.00%, 7/01/22 4,959,203
Aaa AAA 1,000 Connecticut HEFA, Hospital
of St. Raphael (AMBAC),
6.50%, 7/01/11 1,080,700
Aaa AAA 1,500 Connecticut HEFA, Hospital
of St. Raphael (AMBAC),
6.625%, 7/01/14 1,575,585
</TABLE>
34
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITAL - (CONTINUED)
Aaa AAA 2,000 Connecticut HEFA, Yale-New
Haven Hospital (MBIA),
6.50%, 7/01/12 2,093,380
Aaa AAA 1,200 Connecticut HEFA, Yale-New
Haven Hospital (MBIA),
7.10%, 7/01/25 1,297,800
------------
$ 19,212,320
------------
INSURED SOLID WASTE - 0.7%
Aaa AAA $1,275 Connecticut Resources
Recovery Authority Mid-
Connecticut System Bonds
(MBIA), 7.30%, 10/15/12 $ 1,343,161
------------
INSURED SPECIAL TAX - 0.7%
State of Connecticut
Special Tax Obligation
Bonds (FGIC), 5.00%,
10/01/13 $ 1,342,950
AAA $1,500
------------
INSURED WATER AND SEWER - 3.3%
Aaa AAA $1,750 Connecticut Development
Authority Water Facilities
Bonds, Connecticut Water
Company (AMBAC), (AMT),
5.875%, 9/01/22 $ 1,689,048
Aaa AAA 1,150 Connecticut Development
Authority Water Facilities
Bonds, Connecticut Water
Company (AMBAC), (AMT),
5.75%, 7/01/28 1,086,853
Aaa AAA 3,460 South Central Connecticut,
Regional Water Authority
Bonds (FGIC), 5.75%,
8/01/12 3,445,122
------------
$ 6,221,023
------------
SOLID WASTE - 8.1%
A NR $2,500 Bristol Resource Recovery
Facility Operating
Committee, (Ogden Martin
Systems), 6.50%, 7/01/14 $ 2,570,800
A2 A+ 1,000 Connecticut Resources
Recovery Authority
(American REF-FUEL
Company), (AMT), 8.10%,
11/15/15 1,104,660
A2 A+ 450 Connecticut Resources
Recovery Authority
(American REF-FUEL
Company), (AMT), 8.00%,
11/15/15 495,760
A2 A+ 4,250 Connecticut Resources
Recovery Authority
(American REF-FUEL
Company), (AMT), 6.45%,
11/15/22 4,252,805
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR A 7,970 Eastern Connecticut
Resource Recovery
Authority, (Wheelabrator
Lisbon), 5.50%, 1/01/20 7,000,609
------------
$ 15,424,634
------------
SPECIAL TAX - 2.7%
A1 AA- $1,000 State of Connecticut STOB,
4.40%, 10/01/04 $ 948,510
A1 AA- 1,000 State of Connecticut STOB,
5.40%, 9/01/10 968,880
A1 AA- 3,180 State of Connecticut STOB,
6.125%, 9/01/12 3,273,460
------------
Aaa $ 5,190,850
------------
STUDENT LOANS - 1.4%
A1 NR $ 455 Connecticut Higher
Education Supplemental
Loan Authority Revenue
Bonds (CHESLA) (AMT),
7.375%, 11/15/05 $ 477,313
A1 NR 1,350 CHESLA Revenue Bonds
(AMT), 6.20%, 11/15/09 1,355,279
A1 NR 910 CHESLA Revenue Bonds
(AMT), 7.50%, 11/15/10 960,141
------------
$ 2,792,733
------------
TRANSPORTATION - 2.4%
Baa1 A $4,465 Puerto Rico Highway and
Transportation Authority
Bonds, 5.50%, 7/01/15 $ 4,172,900
Baa1 A 500 Puerto Rico Highway and
Transportation Authority
Bonds, 5.50%, 7/01/15 467,290
------------
$ 4,640,190
------------
UTILITY - 4.3%
NR BBB $1,100 Guam Power Authority
Revenue Bonds, 6.625%,
10/01/14 $ 1,115,015
NR BBB 3,625 Guam Power Authority
Revenue Bonds, 6.30%,
10/01/22 3,532,671
NR NR 3,500 Virgin Islands Water and
Power Authority, Electric
Revenue System Bonds,
7.40%, 7/01/11 3,646,055
------------
$ 8,293,741
------------
WATER & SEWER REVENUE - 2.2%
Aa AA $1,250 State of Connecticut Clean
Water Fund Revenue Bonds,
6.00%, 10/01/12 $ 1,286,438
Aa AA 1,000 State of Connecticut Clean
Water Fund Revenue Bonds,
5.80%, 6/01/16 996,310
</TABLE>
35
<PAGE>
-------
CONNECTICUT TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
WATER & SEWER REVENUE - (CONTINUED)
NR A+ 2,225 Connecticut Development
Authority Water Facilities
(Stamford Water Company),
5.30%, 9/01/28 2,010,243
------------
$ 4,292,991
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $192,808,845) $191,254,509
----------
----------
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by Connecticut
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 30.4% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.6% to 14.2% of total investments.
See notes to financial statements
36
<PAGE>
-------
Michigan Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 1.1%
NR BBB- $2,000 Puerto Rico Polytechnic
University, 6.50%, 8/01/24 $ 1,999,980
------------
ELECTRIC UTILITIES - 2.6%
NR BBB $1,000 Guam Power Authority,
6.625%, 10/01/14 $ 1,013,650
Baa1 BBB+ 500 Michigan South Central
Power Agency Supply
System, 6.75%, 11/01/10 517,475
Baa1 BBB 1,790 Monroe County, Michigan
PCR Detroit Edison
Project, 7.75%, 12/01/19 1,946,320
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 5.00%, 7/01/12 885,850
Baa1 A- 365 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 395,788
------------
$ 4,759,083
------------
ESCROWED - 6.2%
NR AA $ 940 Detroit City School
District, Michigan School
Building and Site, 7.15%,
5/01/11 $ 1,074,185
Aaa AAA 1,000 Lake Orion, Michigan
School District U.T.G.O.,
7.00%, (AMBAC) 5/01/20 1,171,550
Aaa AAA 750 Michigan HFA, Oakwood
Hospital (FGIC), 7.20%,
11/01/15 855,308
Aaa AAA 3,500 Monroe County, Michigan
EDC Mercy Memorial
Hospital (MBIA), 7.00%,
9/01/21 4,003,930
NR AA 955 Okemos Public Schools,
Michigan School Building
and Site, 6.90%, 5/01/11 1,079,398
Baa1 AAA 635 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 710,635
NR NR 2,400 Wyandotte School District,
Michigan School Building
and Site, 6.90%, 5/01/16 2,712,624
------------
$ 11,607,630
------------
GENERAL OBLIGATIONS - 5.2%
Aa AA $ 500 Avondale School District,
Michigan School Building
and Site, 6.75%, 5/01/14 $ 524,220
Aa AA 2,550 Clintondale Community
Schools, Michigan 6.75%,
5/01/24 2,686,093
Ba1 BBB 500 Detroit City, Michigan,
8.00%, 4/01/11 543,185
Ba1 BBB 2,925 Detroit City, Michigan,
6.35%, 4/01/14 2,877,615
A AA 500 East Lancing Building
Authority, Michigan,
7.00%, 10/01/16 527,070
Aa AA 1,350 Martin Public Schools,
Michigan School Building
and Site, 6.60%, 5/01/20 1,400,450
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA 1,000 Mattawan Consolidated
Schools, Michigan, 6.40%,
5/01/09 1,044,760
------------
$ 9,603,393
------------
HOSPITAL - 12.9%
A A $ 450 Michigan HFA Detroit
Medical Center Obligated
Group, 7.50%, 8/15/11 $ 487,651
A A 4,550 Michigan HFA Detroit
Medical Center Obligated
Group, 5.50%, 8/15/23 3,898,941
A A 5,500 Michigan HFA Detroit
Medical Center Obligated
Group, 6.25%, 8/15/13 5,309,810
A A 1,000 Michigan HFA Detroit
Medical Center Obligated
Group, 6.50%, 8/15/18 978,950
Aa AA 250 Michigan HFA Henry Ford
Continuing Care
Corporation, 6.75%,
7/01/11 264,555
A1 NR 2,970 Michigan HFA McLaren
Obligated Group, 5.375%,
10/15/13 2,659,843
A1 NR 6,000 Michigan HFA McLaren
Obligated Group, 4.50%,
10/15/21 4,456,559
A A 4,130 Michigan HFA MidMichigan
Obligated Group, 6.625%,
6/01/10 4,215,574
Aa AA 1,750 Royal Oak, Michigan
William Beaumont Hospital,
6.75%, 1/01/20 1,815,818
------------
$ 24,087,701
------------
HOUSING - 1.9%
NR A+ $1,500 Michigan HDA Rental
Housing (AMT), 7.15%,
4/01/10 $ 1,587,150
NR A+ 1,000 Michigan HDA Rental
Housing, 7.10%, 4/01/21 1,038,320
NR AA+ 895 Michigan HDA Single Family
Mortgage, 6.95%, 12/01/20 920,472
------------
$ 3,545,942
------------
INDUSTRIAL DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - 6.1%
Baa1 BBB $3,970 Dickinson, MI PCR-Champion
International, 5.85%,
10/01/18 $ 3,753,436
Baa1 BBB 3,000 Michigan Job Development
Authority PCR-General
Motors, 5.55%, 10/01/09
(1) 2,877,750
A3 BBB+ 3,750 Michigan Strategic Fund-
General Motors, 6.20%,
9/01/20 3,702,788
NR BBB+ 500 Michigan Strategic
Fund-KMart Corporation,
6.80%, 6/15/07 513,520
</TABLE>
37
<PAGE>
-------
MICHIGAN TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - (CONTINUED)
NR BBB 530 Richmond, Michigan EDC
KMart Corporation, 6.625%,
1/01/07 541,305
------------
$ 11,388,799
------------
INSURED EDUCATION - 2.6%
Aaa AAA $ 500 Michigan Higher Education
Student Loan (AMBAC),
6.875%, 10/01/07 $ 525,110
Aaa AAA 2,000 Northern Michigan
University, Michigan
General Revenue (AMBAC),
6.55%, 12/01/14 2,093,840
Aaa AAA 1,250 Oakland University,
Michigan General Revenue
(MBIA), 5.75%, 5/15/26 1,194,425
Aaa AAA 500 University of Puerto Rico
(MBIA), 5.25%, 6/01/25 456,545
Aaa AAA 500 Western Michigan
University (AMBAC), 6.50%,
7/15/21 517,195
------------
$ 4,787,115
------------
INSURED ELECTRIC UTILITIES - 6.3%
Aaa AAA $1,510 Grand Haven City, Michigan
Electric System (MBIA),
5.25%, 7/01/13 $ 1,380,442
Aaa AAA 300 Michigan Strategic Fund,
Detroit Edison Company
(FGIC), 6.95%, 5/01/11 335,595
Aaa AAA 4,000 Michigan Strategic Fund,
Detroit Edison Company
(FGIC), 6.95%, 9/01/21 4,272,040
Aaa AAA 550 Monroe County, Michigan
PCR Detroit Edison Company
(FGIC) (AMT), 7.65%,
9/01/20 607,508
Aaa AAA 5,000 Monroe County, Michigan
PCR Detroit Edison Company
(MBIA) (AMT), 6.55%,
9/01/24 5,133,100
------------
$ 11,728,685
------------
INSURED GENERAL - 2.1%
Aaa AAA $4,500 Livonia, Michigan School
District U.T.G.O. (FGIC),
5.125%, 5/01/22 $ 3,956,670
------------
INSURED GENERAL OBLIGATION - 12.8%
Aaa AAA $ 250 Byron Center, Michigan
Public Schools U.T.G.O.
(MBIA), 5.875%, 5/01/24 $ 243,050
Aaa AAA 1,000 Chelsea, Michigan School
District U.T.G.O. (FGIC),
5.875%, 5/01/25 (2) 969,170
Aaa AAA 1,500 Dearborn, Michigan School
District U.T.G.O. (MBIA),
5.00%, 5/01/10 1,373,655
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 2,000 Grand Ledge, Michigan
School District U.T.G.O.
(MBIA), 7.875%, 5/01/11 2,344,760
Aaa AAA 1,000 Greenville, Michigan
Public Schools U.T.G.O.
(MBIA) 964,510
Aaa AAA 2,000 Holland City, Michigan
School District U.T.G.O.
(AMBAC), 5.25%, 7/01/13 530,180
Aaa AAA 5,020 Huron Valley, Michigan
School District U.T.G.O.
(FGIC), 5/01/20 1,108,014
Aaa AAA 2,000 Lowell Schools, Michigan
U.T.G.O. (FGIC), 5/01/16 569,260
Aaa AAA 2,000 Napoleon, Michigan School
District U.T.G.O. (FGIC)
5.50%, 5/01/20 1,861,980
Aaa AAA 1,000 Napoleon, Michigan School
District U.T.G.O. (FGIC)
5.50%, 5/01/24 920,280
Aaa AAA 2,610 Okemos, Michigan Public
Schools U.T.G.O. (MBIA),
5/01/16 745,860
Aaa AAA 500 Pellston, Michigan Public
Schools U.T.G.O. (MBIA),
6.625%, 5/01/12 529,325
Aaa AAA 2,000 Portage Lake, Michigan
Water & Sewer G.O.
(AMBAC), 6.20%, 10/01/20 2,032,240
Aaa AAA 4,000 Riverview Community School
District, Michigan
U.T.G.O. (AMBAC), 5.25%,
5/01/21 3,565,600
Aaa AAA 2,000 Riverview Community School
District, Michigan
U.T.G.O. (AMBAC), 5.25%,
5/01/14 1,823,940
Aaa AAA 1,400 Vicksburg Community
Schools, Michigan U.T.G.O.
(MBIA), 5/01/16 392,112
Aaa AAA 1,000 Vicksburg Community
Schools, Michigan U.T.G.O.
(MBIA), 5/01/17 263,410
Aaa AAA 2,500 Warren, Michigan School
District U.T.G.O. (MBIA),
5.50%, 5/01/14 2,370,950
Aaa AAA 1,390 Warren, Michigan School
District U.T.G.O. (MBIA),
5.25%, 5/01/21 1,252,362
------------
$ 23,860,658
------------
INSURED HEALTHCARE - 1.0%
Aaa AAA $2,000 Farmington Hills, Michigan
EDC-Botsford Continuing
Care (MBIA), 5.75%,
2/15/25 $ 1,907,260
------------
INSURED HOSPITAL - 12.4%
Aaa AAA $3,000 Dearborn City, Michigan
EDC Oakwood Obligated
Group (MBIA), 5.25%,
8/15/14 $ 2,711,940
</TABLE>
38
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITAL - (CONTINUED)
Aaa AAA 1,000 Dearborn City, Michigan
EDC Oakwood Obligated
Group (MBIA), 5.25%,
8/15/21 882,690
Aaa AAA 3,500 Jackson County, Michigan
HFA W.A. Foote Memorial
(FGIC), 4.75%, 6/01/15 2,992,745
Aaa AAA 5,735 Kalamazoo City, Michigan
HFA Borgess Medical Center
(FGIC), 5.25%, 6/01/17 5,221,316
Aaa AAA 1,750 Kent City, Michigan HFA
Butterworth Hospital
(MBIA), 5.375%, 1/15/19 1,592,762
Aaa AAA 1,015 Michigan HFA Mercy
Memorial Hospital (MBIA),
5.25%, 6/01/13 936,429
Aaa AAA 2,715 Michigan HFA Mercy
Memorial Hospital (MBIA),
5.25%, 6/01/21 2,429,491
Aaa AAA 1,000 Michigan HFA Oakwood
Hospital Obligated Group
(FGIC), 5.625%, 11/01/18 954,410
Aaa AAA 1,500 Michigan HFA Sisters of
Mercy Health Corporation
(MBIA), 5.25%, 8/15/21 1,332,885
Aaa AAA 3,200 Michigan HFA Linked Bulls
& Bears (FSA), 6.10%,
8/15/22 3,221,504
Aaa AAA 1,000 St. Joseph City, Michigan
HFA Mercy Memorial Medical
Center (AMBAC), 5.25%,
1/01/16 910,150
------------
$ 23,186,322
------------
INSURED HOUSING - 1.7%
Aaa AAA $ 500 Michigan HDA Parkway
Meadows Projects (FSA),
6.85%, 10/15/18 $ 518,495
Aaa AAA 2,780 Michigan HDA Mercy
Bellbrook Project (MBIA),
5.375%, 4/01/10 2,617,036
------------
$ 3,135,531
------------
INSURED SPECIAL TAX - 0.2%
Aaa AAA $ 400 Grand Rapids, Michigan
Downtown Development
Authority Tax Increment
(MBIA), 6.875%, 6/01/24 $ 429,840
------------
INSURED TRANSPORTATION - 1.9%
Aaa AAA $1,000 Wayne County, Michigan
Airport (MBIA), 5.25%,
12/01/13 $ 921,380
Aaa AAA 1,000 Wayne County, Michigan
Airport (MBIA), 5.40%,
12/01/16 909,250
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 2,000 Wayne County, Michigan
Airport (MBIA), 5.25%,
12/01/21 1,788,000
------------
$ 3,618,630
------------
INSURED WATER & SEWER - 7.5%
Aaa AAA $ 300 Clinton Township, Michigan
Water and Sewage System
(AMBAC), 4.75%, 7/01/09 $ 272,325
Aaa AAA 400 Clinton Township, Michigan
Water and Sewage System
(AMBAC), 4.75%, 7/01/10 359,544
Aaa AAA 400 Clinton Township, Michigan
Water and Sewage System
(AMBAC), 4.75%, 7/01/11 357,872
Aaa AAA 400 Clinton Township, Michigan
Water and Sewage System
(AMBAC), 4.75%, 7/01/12 356,288
Aaa AAA 4,425 Detroit City, Michigan
Water Supply System
(FGIC), 6.25%, 7/01/12 4,549,343
Aaa AAA 9,680 Detroit City, Michigan
Water Supply System
(FGIC), 4.75%, 7/01/19 8,078,250
------------
$ 13,973,622
------------
MISCELLANEOUS - 3.4%
A1 AA $ 590 Michigan Municipal Bond
Authority Local Government
Loan, 6.90%, 5/01/21 $ 648,404
A1 AA 2,550 Michigan Municipal Bond
Authority Local Government
Loan-Qualified School,
6.50%, 5/01/07 2,768,356
A1 AA 760 Michigan Municipal Bond
Authority Local Government
Loan, 6.50%, 5/01/08 822,685
NR A- 2,000 Michigan Strategic
Environmental Research
Institute, 6.375%, 8/15/12 2,041,880
------------
$ 6,281,325
------------
SOLID WASTE - 4.5%
NR BBB- $4,220 Greater Detroit, Michigan
Resource Recovery
Authority, 9.25%, 12/13/08 $ 4,391,712
NR BBB- 1,000 Greater Detroit, Michigan
Resource Recovery
Authority, 9.25%, 12/13/08 1,040,690
NR BBB- 1,915 Greater Detroit, Michigan
Resource Recovery
Authority, 9.25%, 12/13/08 1,992,921
NR BBB- 1,000 Greater Detroit, Michigan
Resource Recovery
Authority, 9.25%, 12/13/08 1,040,690
------------
$ 8,466,013
------------
</TABLE>
39
<PAGE>
-------
MICHIGAN TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX REVENUE - 5.6%
NR BBB+ $ 250 Battle Creek, Michigan
Downtown Development
Authority Tax Increment,
7.60%, 5/01/16 $ 272,698
NR BBB+ 1,315 Battle Creek, Michigan
Downtown Development
Authority Tax Increment,
7.65%, 5/01/22 1,438,742
NR A 7,650 Detroit City Convention
Facility, Michigan Cobo
Hall Expansion Project,
5.25%, 9/30/12 (3) 6,843,690
NR A 1,825 Michigan Muni Bond
Authority Local Government
Loan Project, 6.75%,
5/01/12 1,944,811
------------
$ 10,499,941
------------
TRANSPORTATION - 1.1%
Baa1 A $2,175 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/01/19 $ 1,988,842
------------
WATER & SEWER - 0.9%
Aa AA $1,895 Lansing City, Michigan
Water and Electric Utility
System, 4.90%, 7/01/10 $ 1,713,914
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $182,066,681) $186,526,896
----------
----------
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
(2) When-issued security.
(3) Security has been segregated to cover when-issued securities.
The Portfolio invests primarily in debt securities issued by Michigan
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 51.8% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 2.0% to
22.0% of total investments.
See notes to financial statements
40
<PAGE>
-------
Minnesota Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 3.2%
A NR $ 100 Minnesota Higher Education
Facilities Authority, St.
Olaf College, 6.25%,
4/01/10 $ 100,034
Baa NR 1,000 Minnesota Higher Education
Facilities Authority, St.
Mary's College, 6.15%,
10/01/23 968,720
A NR 1,500 Northfield Minnesota, St.
Olaf College, 6.40%,
10/01/21 1,543,785
-----------
$ 2,612,539
-----------
ESCROWED - 5.4%
Aa AA+ $1,700 State of Minnesota "RIBS",
Variable, 8/01/11 (1) $ 2,016,625
A1 AAA 400 Southern Minnesota
Municipal Power Agency,
7.00%, 1/01/16 413,272
Aaa AAA 1,840 Western Minnesota Municipal
Power Agency, 6.375%,
1/01/16 1,956,380
-----------
$ 4,386,277
-----------
GENERAL OBLIGATIONS - 11.2%
Aa NR $ 500 Brainerd, Independent
School District, 5.50%,
2/01/15 $ 476,455
Aaa AAA 700 City of Minneapolis, 6.25%,
4/01/12 727,902
Aaa AAA 1,000 City of Minneapolis, 5.20%,
3/01/23 943,830
Aa1 AA+ 2,000 State of Minnesota, 5.40%,
8/01/13 1,913,500
Aa1 AA+ 1,000 State of Minnesota, Duluth
Airport, 6.25%, 8/01/14 1,019,330
Aa1 AA+ 1,000 State of Minnesota, Duluth
Airport, 6.25%, 8/01/14 1,019,330
Aa AA 1,250 Regents of the University
of Minnesota, "INFLOS",
Variable, 8/15/03 (1) 1,181,412
A AA- 200 City of Saint Cloud,
"Inverse Floaters",
Variable, 8/01/13 (1) 205,000
Aa NR 1,595 White Bear Lake,
Independent School
District, 6.00%, 2/01/14 1,596,037
-----------
$ 9,082,796
-----------
HEALTHCARE (NON-HOSPITAL) - 5.7%
A A- $1,250 Minneapolis and St. Paul
Housing and Redevelopment
Authority, Group Health
Plan, Inc., 6.75%, 12/01/13 $ 1,298,000
A A- 250 Minneapolis and St. Paul
Housing and Redevelopment
Authority, Group Health
Plan, Inc., 6.90%, 10/15/22 262,768
NR NR 1,000 St. Paul Housing and
Redevelopment Authority,
Highland Park, 8.75%,
11/01/24 997,670
NR BBB+ 2,120 City of Red Wing, Minnesota
Health Care Facilities
Revenue, River Region
Obligated Group, 6.50%,
9/01/22 2,054,322
-----------
$ 4,612,760
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - 6.9%
NR AA+ $1,400 City of Rochester,
Minnesota Health Care
Facilities (MHCF) Mayo
Foundation/Medical Center,
6.026%, 11/15/15 $ 1,374,142
NR AA+ 500 City of Rochester, MHCF
Mayo Foundation/Medical
Center, "Inverse Floaters",
Variable 11/15/15 (1) 500,000
NR AA+ 1,700 City of Rochester, MHCF
Mayo Foundation/Medical
Center, 5.75%, 11/15/21 1,668,193
Baa BBB- 1,000 St. Paul Housing and
Redevelopment Authority,
Healtheast Project, 6.625%,
11/01/17 969,920
A A+ 1,000 St. Paul Housing and
Redevelopment Authority,
Childrens Hospital, 7.00%,
12/01/19 1,080,420
-----------
$ 5,592,675
-----------
HOUSING - 13.6%
NR AAA $ 300 City of Coon Rapids, Multi-
Family Housing (MFH) Browns
Meadow Manor, (FHA), (AMT),
6.85%, 7/01/33 $ 300,570
NR AAA 1,395 County of Dakota, Housing
and Redevelopment
Authority, (GNMA), 7.375%,
12/01/29 (2) 1,473,259
Aa NR 1,200 City of Maplewood MFH,
Beaver Creek Apartments,
(FHA), 6.50%, 9/01/24 1,182,960
NR AAA 90 Minneapolis and St. Paul
Housing Finance Board,
(GNMA), (AMT), 7.30%,
8/01/31 94,035
Aa AA 420 Minnesota Housing Finance
Agency, Single-Family
Mortgage, (SFM), 7.70%,
7/01/14 450,114
Aa AA 380 Minnesota Housing Finance
Agency, SFM, 7.05%, 7/01/22 390,085
Aa AA 1,095 Minnesota Housing Finance
Agency, SFM, (AMT), 5.80%,
7/01/25 1,007,860
Aa AA+ 465 Minnesota Housing Finance
Agency, SFM, 6.95%, 7/01/16 481,094
Aa AA+ 1,000 Minnesota Housing Finance
Agency, SFM, (AMT), 6.75%,
7/01/12 1,019,330
Aa AA+ 1,235 Minnesota Housing Finance
Agency, SFM, (AMT), 6.85%,
1/01/24 1,254,612
Aa AA+ 1,700 Minnesota Housing Finance
Agency, SFM, (AMT), 6.50%,
1/01/26 1,686,502
</TABLE>
41
<PAGE>
-------
MINNESOTA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aa AA+ 710 Minnesota Housing Finance
Agency, SFM, (AMT), 6.75%,
1/01/26 714,352
Aa AA+ 430 Minnesota Housing Finance
Agency, SFM, (AMT), 6.15%,
1/01/26 410,121
NR AAA 230 St. Paul, Minnesota Housing
and Redevelopment
Authority, (FNMA), 6.95%,
12/01/31 236,845
NR AAA 360 St. Paul, Minnesota Housing
and Redevelopment
Authority, (FNMA), 6.90%,
12/01/21 370,735
-----------
$11,072,474
-----------
INDUSTRIAL DEVELOPMENT/POLLUTION
CONTROL - 8.8%
NR AA- $ 300 City of Minneapolis,
Minnesota Community
Development Agency, 6.40%,
12/01/04 $ 315,618
NR BBB+ 100 City of Minneapolis,
Minnesota Community
Development Agency, 7.35%,
12/01/09 104,342
NR BBB+ 1,605 City of Minneapolis,
Minnesota Community
Development Agency, 6.80%,
12/01/24 1,574,810
Aa3 AA- 3,000 Seaway Port Authority of
Duluth, Cargill, Inc.,
6.80%, 5/01/12 3,203,130
Aa3 NR 2,000 Seaway Port Authority of
Duluth, Cargill, Inc.,
5.75%, 12/01/16 1,961,300
-----------
$ 7,159,200
-----------
INSURED GENERAL OBLIGATION - 3.6%
Aaa AAA $ 500 Cass Lake, Independent
School District, (AMBAC),
6.625%, 2/01/12 $ 537,370
Aaa AAA 1,000 Roseville, Independent
School District, (FGIC),
6.00%, 2/01/23 998,650
Aaa AAA 1,330 St. Francis, Independent
School District No. 15,
(CGIC), 6.35%, 2/01/12 1,391,153
-----------
$ 2,927,173
-----------
INSURED HOSPITAL - 19.7%
Aaa AAA $ 750 Duluth Economic Development
Authority, The Duluth
Clinic, (AMBAC), 6.20%,
11/01/12 $ 771,690
Aaa AAA 100 Minneapolis and St. Paul
Health Care Systems, Health
One Obligated Group,
(MBIA), 7.40%, 8/15/11 108,990
Aaa AAA 5,845 Minneapolis and St. Paul
Health Care Systems,
Healthspan, (AMBAC), 4.75%,
11/15/18 4,895,655
Aaa AAA 250 City of Minneapolis,
Hospital Revenue, Fairview
Hospital and Healthcare,
(MBIA), 6.50%, 1/01/11 262,517
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 750 Plymouth, Health
Facilities, Westhealth
Project (CGIC), 6.25%,
6/01/16 768,293
Aaa AAA 1,000 City of Saint Cloud,
Hospital Facilities, The
Saint Cloud Hospital,
(AMBAC), 6.75%, 7/01/15 1,063,430
Aaa AAA 3,650 City of St. Louis Park,
Health Care Facilities
Health System Minnesota
Obligated Group, (AMBAC),
5.20%, 7/01/23 3,234,119
Aaa AAA 5,150 St. Paul Housing and
Redevelopment Authority,
St. Paul-Ramsey Medical
Center Project, (AMBAC),
5.55%, 5/15/23 4,891,213
-----------
$15,995,907
-----------
INSURED HOUSING - 1.9%
Aaa AAA $1,500 SCA Tax Exempt Trust,
Burnsville, Minnesota
Multi-Family Housing,
(FSA), 7.10%, 1/01/30 $ 1,538,775
-----------
INSURED SPECIAL TAX - 3.5%
Aaa AAA $3,000 St. Paul Housing and
Redevelopment Authority,
Civic Center Project,
(MBIA), 5.45%, 11/01/13 $ 2,840,460
-----------
INSURED UTILITIES - 3.9%
Aaa AAA $ 300 Northern Municipal Power
Agency, (AMBAC), 6.00%,
1/01/19 $ 300,528
Aaa AAA 750 Southern Minnesota
Municipal Power Agency,
(MBIA), 5.00%, 1/01/12 688,477
Aaa AAA 300 Southern Minnesota
Municipal Power Agency,
"Yield Curve Notes",
(MBIA), Variable, 1/01/18
(1) 283,512
Aaa AAA 6,950 Southern Minnesota
Municipal Power Agency,
(MBIA), 0%, 10/01/21 1,494,737
Aaa AAA 510 Western Minnesota Municipal
Power Agency, (MBIA),
5.50%, 1/01/15 489,416
-----------
$ 3,256,670
-----------
LEASE/CERTIFICATE OF
PARTICIPATION - 2.7%
Baa1 NR $ 350 City of Cambridge, Economic
Development Authority,
6.25%, 2/01/14 $ 347,722
</TABLE>
42
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
LEASE/CERTIFICATE OF PARTICIPATION -
(CONTINUED)
Aa AA 1,770 Hennepin County, Lease
Revenue Certificates of
Participation, 6.80%,
5/01/17(2) 1,856,199
-----------
$ 2,203,921
-----------
MISCELLANEOUS - 0.9%
A A $ 750 Metropolitan Council,
Minneapolis-St. Paul
Metropolitan Area Sports
Facilities, Hubert H.
Humphrey Metrodome, 6.00%,
10/01/09 $ 757,815
-----------
TRANSPORTATION - 0.6%
Aaa AAA $ 200 Minneapolis and St. Paul,
Minnesota Metropolitan
Airports Commission, (AMT),
6.60%, 1/01/09 $ 211,186
Aaa AAA 300 Minneapolis and St. Paul,
Minnesota Metropolitan
Airports Commission, (AMT),
6.60%, 1/01/10 316,779
-----------
$ 527,965
-----------
UTILITY - 5.1%
Aa3 A- $1,200 Bass Brook, Pollution
Control Revenue, Minnesota
Power & Light Company,
6.00%, 7/01/22 $ 1,173,300
A A 1,500 Northern Municipal Power
Agency, Minnesota Electric,
7.25%, 1/01/16 1,624,965
A1 A+ 1,000 Southern Minnesota
Municipal Power Agency,
5.00%, 1/01/12 902,250
A A 450 Western Minnesota Municipal
Power Agency, 7.00%,
1/01/13 468,599
-----------
$ 4,169,114
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
WATER AND SEWER - 3.3%
Aa3 A $ 450 Anoka County, Minnesota
Solid Waste Disposal
Revenue Natural Rural
Utilities, 6.95%, 12/01/08 $ 483,421
Aa AAA 100 Minnesota Public Facilities
Authority Water Pollution
Control, 7.00%, 3/01/09 107,398
Aa AAA 150 Minnesota Public Facilities
Authority Water Pollution
Control, 6.70%, 3/01/13 160,380
Aa AAA 1,835 Minnesota Public Facilities
Authority Water Pollution
Control, 6.50%, 3/01/14 1,933,393
-----------
$ 2,684,592
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $78,851,048) $81,421,113
---------
---------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by Minnesota
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 34.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.4% to 19.3% of total investments.
See notes to financial statements
43
<PAGE>
-------
New Jersey Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 5.0%
NR NR $15,750 New Jersey Economic
Development Authority,
Vineland Cogeneration
Limited Partnership,
(AMT), 7.875%, 6/01/19 $ 16,904,475
NR BB+ 3,370 New Jersey Economic
Development Authority,
Trigen-Trenton Project,
(AMT), 6.10%, 12/01/04 3,346,039
------------
$ 20,250,514
------------
EDUCATION - 3.5%
Baa1 BBB $ 2,480 New Jersey Educational
Facilities Authority,
Seton Hall University,
7.00%, 7/01/21 $ 2,618,235
Aa1 AA+ 1,000 New Jersey Educational
Facilities Authority,
Princeton Theological
Seminary, 6.375%, 7/01/22 1,034,580
NR NR 8,800 New Jersey State Higher
Education Assistance
Authority, (AMT), 0%,
7/01/20 3,042,952
NR BBB- 1,760 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Authority, Polytechnic
University, 5.70%, 8/01/13 1,620,626
NR BBB- 1,310 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Authority, Polytechnic
University, 5.50%, 8/01/24 1,139,988
NR BBB- 1,000 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Authority, Polytechnic
University, 6.50%, 8/01/24 999,990
A1 AA 2,500 Rutgers, The State
University of New Jersey,
6.85%, 5/01/21 2,658,400
A AA 1,000 University of Medicine and
Dentistry of New Jersey,
7.20%, 12/01/19 1,089,280
------------
$ 14,204,051
------------
ESCROWED - 0.8%
Aaa AAA $ 870 The City of Newark, New
Jersey (AMBAC), 7.375%,
10/01/07 $ 985,440
NR NR 2,000 County of Passaic, New
Jersey, 6.70%, 9/01/13 2,207,360
------------
$ 3,192,800
------------
GENERAL OBLIGATIONS - 13.3%
NR BBB $ 9,745 Government of Guam, 5.40%,
11/15/18 $ 8,414,515
NR A+ 5,000 The Hudson County
Improvement Authority,
6.625%, 8/01/25 5,235,950
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa1 NR 3,000 Mercer County Improvement
Authority Solid Waste, 0%,
4/01/10 1,299,240
Baa1 A 1,990 Commonwealth of Puerto
Rico, 6.45%, 7/01/17 2,083,530
Baa1 A 5,000 Commonwealth of Puerto
Rico, 6.50%, 7/01/23 5,234,400
Baa BBB 5,645 The Commonwealth of Puerto
Rico Aqueduct and Sewer
Authority, 7.875%, 7/01/17 6,253,305
Baa1 A 3,250 Puerto Rico Public
Buildings Authority,
Public Education and
Health Facilities, 5.75%,
7/01/15 3,119,675
Baa1 A 5,125 Puerto Rico Public
Buildings Authority,
Public Education and
Health Facilities, 5.50%,
7/01/21 4,695,730
Baa1 A 2,075 Puerto Rico Public
Buildings Authority,
Public Education and
Health Facilities, 5.75%,
7/01/16 1,977,932
NR NR 14,850 Virgin Islands Public
Finance Authority, 7.25%,
10/01/18 15,318,517
------------
$ 53,632,794
------------
HEALTHCARE (NON-HOSPITAL) - 3.0%
NR BBB $ 615 New Jersey Economic
Development Authority
Cadbury Corporation,
7.50%, 7/01/21 $ 593,875
NR BBB 300 New Jersey Economic
Development Authority
Cadbury Corporation,
8.70%, 7/01/07 319,896
NR NR 1,400 New Jersey Economic
Development Authority,
Claremont Health System,
9.10%, 9/01/22 1,465,632
NR NR 2,500 New Jersey Economic
Development Authority,
Victoria Health
Corporation, 7.65%,
1/01/14 2,372,700
NR NR 4,000 New Jersey Economic
Development Authority,
Keswick Pines Project,
8.75%, 1/01/24 3,991,120
NR NR 3,630 New Jersey Economic
Development Authority,
Forsgate Project, 8.625%,
6/01/25 3,410,857
------------
$ 12,154,080
------------
HOSPITALS - 6.6%
Aa AAA $10,790 New Jersey Health Care
Facilities Financing
Authority, Barnert
Hospital, (FHA), 6.80%,
8/01/19 $ 11,298,209
</TABLE>
44
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - (CONTINUED)
A A- 2,300 New Jersey Health Care
Facilities Financing
Authority, Atlantic City
Medical Center, 6.80%,
7/01/11 2,417,300
Baa1 NR 3,100 New Jersey Health Care
Facilities Financing
Authority, Deborah Heart
and Lung Center, 6.30%,
7/01/23 3,047,796
Baa NR 2,000 New Jersey Health Care
Facilities Financing
Authority, Southern Ocean
County Hospital, 6.25%,
7/01/23 1,842,100
A A- 9,650 New Jersey Health Care
Facilities Financing
Authority, Chilton
Memorial Hospital, 5.00%,
7/01/13 8,175,866
------------
$ 26,781,271
------------
HOUSING - 4.4%
Aa AA $ 1,250 New Jersey Building
Authority, 7.20%, 6/15/13 $ 1,357,438
Aa AA- 2,591 New Jersey Building
Authority, Garden State
Savings, 0%, 6/15/10 1,105,813
NR AAA 3,700 New Jersey Housing and
Mortgage Finance Agency,
Presidential Plaza, (FHA),
7.00%, 5/01/30 3,832,793
NR AAA 2,000 New Jersey Housing and
Mortgage Finance Agency,
Presidential Plaza, (FHA),
6.95%, 5/01/13 2,084,940
NR AA+ 1,000 New Jersey Housing and
Mortgage Finance Agency,
Section 8, 7.10%, 11/01/12 1,040,920
NR AA+ 1,975 New Jersey Housing and
Mortgage Finance Agency,
Section 8, 7.10%, 11/01/11 2,055,817
NR AA+ 1,250 New Jersey Housing and
Mortgage Finance Agency,
Rental Housing, (AMT),
7.25%, 11/01/22 1,287,025
NR A+ 1,000 New Jersey Housing and
Mortgage Finance Agency,
Rental Housing, (AMT),
7.10%, 5/01/22 1,029,330
NR A+ 3,715 New Jersey Housing and
Mortgage Finance Agency,
6.60%, 11/01/14 3,773,511
Aaa AAA 300 Puerto Rico Housing
Finance Corporation
Mortgage Revenue (GNMA),
6.85%, 10/15/23 310,209
------------
$ 17,877,796
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/POLLUTION
CONTROL - 5.0%
NR NR $ 2,000 Middlesex County Pollution
Control Financing
Authority, Amerada Hess
Corporation, 7.875%,
6/01/22 $ 2,238,020
NR NR 4,000 Middlesex County Pollution
Control Financing
Authority, Amerada Hess
Corporation, 6.875%,
12/01/22 4,168,480
Aa1 NR 3,000 New Jersey Economic
Development Authority,
Garden State Paper
Company, (AMT), 7.125%,
4/01/22 3,124,320
NR NR 2,000 New Jersey Economic
Development Authority, The
Seeing Eye, Inc., 7.30%,
4/01/11 2,123,560
NR BBB 1,160 New Jersey Economic
Development Authority,
National Association of
Accountants, Inc., 7.65%,
7/01/09 1,241,583
NR AA- 3,300 New Jersey Economic
Development Authority, Oak
Grove Associates, 6.125%,
12/01/06 3,401,937
Baa1 A- 2,135 New Jersey Economic
Development Authority,
GATX Terminals
Corporation, 7.30%,
9/01/19 2,349,098
Aa3 AA- 1,300 Puerto Rico Industrial,
Medical and Environmental
Pollution Control
Authority, Motorola, Inc.,
6.75%, 1/01/14 1,375,712
------------
$ 20,022,710
------------
INSURED EDUCATION - 0.5%
Aaa AAA $ 2,000 New Jersey State
Educational Facilities
Authority, Seton Hall
University, (BIGI), 6.85%,
7/01/19 $ 2,106,540
------------
INSURED HOSPITALS - 1.4%
Aaa AAA $ 1,310 New Jersey Health Care
Facilities Financing
Authority, Hackensack
Medical Center, (FGIC),
6.625%, 7/01/17 $ 1,372,631
Aaa AAA 2,000 New Jersey Health Care
Facilities Financing
Authority, Hackensack
Medical Center, (FGIC),
6.25%, 7/01/21 2,033,380
Aa AA- 480 New Jersey Health Care
Facilities Financing
Authority, Cathedral
Health Services (MBIA),
7.25%, 2/15/10 522,144
</TABLE>
45
<PAGE>
-------
NEW JERSEY TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS - (CONTINUED)
Aa AA- 1,570 New Jersey Health Care
Facilities Financing
Authority, Cathedral
Health Services, (MBIA)
7.25%, 2/15/21 1,700,059
------------
$ 5,628,214
------------
INSURED HOUSING - 1.3%
Aaa AAA $ 1,410 New Jersey Housing and
Mortgage Finance Agency,
(MBIA), 7.375%, 10/01/17 $ 1,468,007
Aaa AAA 1,760 New Jersey Housing and
Mortgage Finance Agency,
(AMT), (MBIA), 7.70%,
10/01/29 1,847,402
Aaa AAA 1,745 Pennsauken Township
Housing Finance
Corporation, (MBIA),
8.00%, 4/01/11 1,836,665
------------
$ 5,152,074
------------
INSURED LEASE REVENUE - 5.8%
Aaa AAA $ 3,900 County of Atlantic, Public
Facilities Lease
Agreement, (FGIC), 6.00%,
3/01/13 $ 4,011,072
Aaa AAA 1,750 County of Hudson, New
Jersey Correctional
Facility, (MBIA), 6.50%,
12/01/11 1,842,925
Aaa AAA 6,240 County of Hudson, New
Jersey Correctional
Facility, (MBIA), 6.60%,
12/01/21 6,537,648
Aaa AAA 2,500 County of Hudson, New
Jersey Improvement
Authority, Secondary Yield
Curve Notes, (FGIC),
Variable, 12/01/25 (1) 2,507,900
Aaa AAA 1,800 County of Middlesex,
Certificates of
Participation, (MBIA),
6.125%, 2/15/19 1,835,622
Aaa AAA 5,000 New Jersey Builders
(AMBAC), 5%, 6/15/13 4,506,800
Aaa AAA 2,225 University of Medicine and
Dentistry Certificates of
Participation, (MBIA),
6.75%, 12/01/09 2,359,590
------------
$ 23,601,557
------------
INSURED SOLID WASTE - 0.5%
Aaa AAA $ 2,000 The Mercer County
Improvement Authority,
Solid Waste Revenue,
(AMT), (FGIC), 6.70%,
4/01/13 $ 2,118,200
------------
INSURED SPECIAL TAX - 0.8%
Aaa AAA $ 3,375 New Jersey Economic
Development Authority,
Market Transition
Facility, (MBIA), 5.875%,
7/01/11 $ 3,386,914
------------
INSURED TRANSPORTATION - 4.1%
Aaa AAA $ 2,000 The Delaware River and Bay
Authority, (MBIA), 4.75%,
1/01/24 $ 1,660,900
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 5,000 New Jersey Turnpike
Authority "RITES", (MBIA),
Variable, 1/01/16 (1) 5,744,000
Aaa AAA 8,450 New Jersey Turnpike
Authority, (MBIA), 6.50%,
1/01/16 9,162,335
------------
$ 16,567,235
------------
INSURED UTILITIES - 3.9%
Aaa AAA $ 2,750 New Jersey Economic
Development Authority, New
Jersey American Water Co.,
(AMT), (FGIC), 6.875%,
11/01/34 $ 2,912,058
Aaa AAA 13,500 Salem County, Public
Service Electric and Gas,
(MBIA), 5.55%, 11/01/33 12,629,790
------------
$ 15,541,848
------------
INSURED WATER & SEWER - 5.0%
Aaa AAA $ 6,500 Landis New Jersey Sewerage
Authority, Linked "CARS"
(FGIC), 5.65%, 9/19/19 $ 6,248,970
Aaa AAA 2,500 Middlesex County Utilities
Authority, Sewer Revenue,
(MBIA), Variable, 8/15/10
(1) 2,645,425
Aaa AAA 2,000 Township of Monroe, New
Jersey Municipal Utilities
Authority, (MBIA), 5.50%,
2/01/17 1,882,380
Aaa AAA 1,250 New Jersey Economic
Development Authority,
Middlesex Water Company,
(AMBAC), 5.20%, 10/01/22 1,107,550
Aaa AAA 1,650 New Jersey Economic
Development Authority,
Hackensack Water Company,
(MBIA), 5.80%, 3/01/24 1,607,248
Aaa AAA 1,270 Passaic Valley Water
Commissioners, (FGIC),
5.00%, 12/15/22 1,100,214
Aaa AAA 6,130 West New York, New Jersey
Municipal Utilities
Authority, (FGIC), 5.125%,
12/15/17 5,480,772
------------
$ 20,072,559
------------
LEASE/CERTIFICATE OF
PARTICIPATION - 3.7%
Baa1 A- $ 720 County of Atlantic, New
Jersey Public Facilities
Lease Agreement, 8.875%,
1/15/14 $ 929,902
Baa1 A- 785 County of Atlantic, New
Jersey Public Facilities
Lease Agreement, 8.875%,
1/15/15 1,015,043
A1 NR 1,000 Township of Bedminster,
Board of Education,
7.125%, 9/01/10 1,092,370
</TABLE>
46
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
LEASE/CERTIFICATE OF PARTICIPATION -
(CONTINUED)
Aa AA- 1,000 Mercer County Improvement
Authority, Richard J.
Hughes Justice Complex,
6.05%, 1/01/14 1,000,510
Aa AA- 2,000 Mercer County Improvement
Authority, Richard J.
Hughes Justice Complex,
6.05%, 1/01/15 2,001,020
Aa AA- 1,500 Mercer County Improvement
Authority, Richard J.
Hughes Justice Complex,
6.05%, 1/01/16 1,500,465
Aa AA- 1,500 Mercer County Improvement
Authority, Richard J.
Hughes Justice Complex,
6.05%, 1/01/17 1,500,465
Aa AA- 5,420 New Jersey Building
Authority, 5.00%, 6/15/16 4,785,210
NR A+ 1,000 New Jersey Economic
Development Authority,
Performing Arts Center
Site Acquisition, 6.75%,
6/15/12 1,049,580
------------
$ 14,874,565
------------
MISCELLANEOUS - 4.0%
A1 A+ $ 1,650 New Jersey Economic
Development Authority,
Economic Recovery Fund,
0%, 9/15/09 $ 727,089
A1 A+ 5,500 New Jersey Economic
Development Authority,
Economic Recovery Fund,
0%, 3/15/13 1,911,525
NR NR 7,600 New Jersey Sports and
Exposition Authority,
Monmouth Park, 8.00%,
1/01/25 8,251,167
Aa NR 6,000 New Jersey Sports and
Exposition Authority,
5.20%, 1/01/20 5,318,580
------------
$ 16,208,361
------------
SOLID WASTE - 6.8%
Ba NR $ 3,655 The Atlantic County
Utilities Authority, Solid
Waste Revenue, 7.125%,
3/01/16 $ 3,641,001
Ba BBB+ 6,125 Pollution Control
Financing Authority of
Camden County, (AMT),
7.50%, 12/01/09 6,237,639
Ba NR 5,975 Mercer County Improvement
Authority, Solid Waste
System Revenue, (AMT), 0%,
4/01/14 1,548,003
Ba NR 6,000 Mercer County Improvement
Authority, Solid Waste
System Revenue, (AMT), 0%,
4/01/15 1,445,940
Ba NR 3,000 Mercer County Improvement
Authority, Solid Waste
System Revenue, (AMT), 0%,
4/01/16 672,510
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Ba NR 1,500 Passaic County Utilities
Authority Solid Waste
System Revenue, 7.00%,
11/15/07 1,485,795
NR A- 11,930 Union County, New Jersey
Utilities Authority, Solid
Waste Revenue, (AMT),
7.20%, 6/15/14 12,411,376
------------
$ 27,442,264
------------
SPECIAL TAX - 0.2%
Baa1 BBB+ $ 550 Puerto Rico Infrastructure
Financing Authority,
7.90%, 7/01/07 $ 607,574
------------
TRANSPORTATION - 15.1%
NR BBB $ 1,250 Guam Airport Authority,
(AMT), 6.60%, 10/01/10 $ 1,263,675
NR BBB 1,400 Guam Airport Authority,
6.50%, 10/01/23 1,390,886
NR BBB 2,000 Guam Airport Authority,
(AMT), 6.70%, 10/01/23 1,999,740
A1 AA- 3,705 The Port Authority of New
York and New Jersey,
5.25%, 7/15/14 3,396,706
A1 AA- 9,500 The Port Authority of New
York and New Jersey,
7.35%, 10/01/27 (2) 10,438,315
A1 AA- 2,645 The Port Authority of New
York and New Jersey,
6.75%, 8/01/26 2,792,194
A1 AA- 5,000 The Port Authority of New
York and New Jersey,
(AMT), 6.25%, 1/15/27 4,999,750
A1 AA- 9,000 The Port Authority of New
York and New Jersey,
6.125%, 6/01/94 8,962,560
A1 AA- 5,000 The Port Authority of New
York and New Jersey,
5.375%, 3/01/28 4,561,400
Baa1 BB 5,100 The Port Authority of New
York and New Jersey, Delta
Air Lines Inc., 6.95%,
6/01/08 5,356,428
Baa1 A 2,135 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/01/12 2,216,963
Baa1 A 3,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/01/21 2,638,110
Baa1 A 4,100 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/01/18 4,243,131
Baa3 BB+ 5,550 Puerto Rico Port
Authority, American
Airlines, (AMT), 6.30%,
6/01/23 5,386,553
</TABLE>
47
<PAGE>
-------
NEW JERSEY TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - (CONTINUED)
NR A+ 1,115 South Jersey Port
Corporation, New Jersey
Marine Terminal, 6.875%,
1/01/20 1,147,224
------------
$ 60,793,635
------------
UTILITY - 2.8%
NR BBB $ 100 Guam Power Authority,
5.25%, 10/01/13 $ 88,727
NR BBB 1,500 Guam Power Authority,
5.25%, 10/01/23 1,267,485
NR BBB 2,000 Guam Power Authority,
6.75%, 10/01/24 2,031,080
A3 BBB+ 625 New Jersey Economic
Development Authority,
Elizabethtown Gas Co.,
(AMT), 6.75%, 10/01/21 632,337
A2 A 1,455 New Jersey Economic
Development Authority,
Natural Gas Facilities,
(AMT), 7.05%, 3/01/16 1,542,387
Baa1 A- 460 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 498,801
NR NR 5,105 Virgin Islands Water and
Power Authority, Electric
System Revenue, 7.40%,
7/01/11 5,318,032
------------
$ 11,378,849
------------
WATER & SEWER - 2.5%
A1 AA- $ 2,000 Gloucester County
Utilities Authority,
6.50%, 1/01/21 $ 2,062,600
A3 A 3,250 New Jersey Economic
Development Authority,
Elizabethtown Water
Revenue, (AMT), 6.70%,
8/01/21 3,394,853
Aa AA 1,400 New Jersey Wastewater
Treatment Trust, 7.25%,
5/15/08 1,511,230
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA 1,000 New Jersey Wastewater
Treatment Trust, 6.875%,
6/15/09 1,090,310
Aa AA 250 New Jersey Wastewater
Treatment Trust, 7.00%,
6/15/10 273,342
Aa AA 1,000 New Jersey Wastewater
Treatment Trust, 6.00%,
7/01/10 1,022,020
A1 AA 500 The Somerset Raritan
Valley Sewerage Authority,
6.75%, 7/01/10 534,655
------------
$ 9,889,010
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $389,842,758) $403,485,415
----------
----------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by New Jersey
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 27.9% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.1% to 14.5% of total investments.
See notes to financial statements
48
<PAGE>
-------
Pennsylvania Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 5.3%
NR NR $12,000 Pennsylvania Economic
Development Authority,
Northampton Generating
Project, (AMT), 6.50%,
1/01/13 $ 11,599,320
NR BBB- 9,000 Pennsylvania Economic
Development Authority,
Colver Project, (AMT),
7.125%, 12/01/15 9,437,490
NR BBB- 5,000 Pennsylvania Economic
Development Authority,
Colver Project, (AMT),
7.15%, 12/01/18 5,212,250
------------
$ 26,249,060
------------
EDUCATION - 5.3%
NR BBB $ 4,865 Erie Higher Education
Building Authority,
Mercyhurst College, 5.75%,
3/15/20 $ 4,370,132
Baa1 NR 1,500 Latrobe, Saint Vincent
College, 6.75%, 5/01/24 1,535,460
NR AAA 2,000 Lehigh County, Allentown
College of St. Francis,
6.75%, 12/15/12 2,129,440
Aa AA 3,700 Pennsylvania, University
of Pennsylvania, 6.625%,
1/01/17 3,733,041
NR A- 4,225 Scranton-Lackawanna,
Pennsylvania University,
University of Scranton,
6.40%, 3/01/07 4,368,185
NR AA 9,700 Swarthmore Borough,
Swarthmore College, 6.00%,
9/15/20 9,649,366
------------
$ 25,785,624
------------
ESCROWED - 6.5%
Aaa AAA $ 5,600 Berks County, GO, (FGIC),
Variable, 11/15/20 (1) $ 6,412,000
Aaa A- 1,750 Chester County, HEFA, Bryn
Mar Hospitals, 6.75%,
7/01/14 1,990,468
Aaa AAA 3,195 Derry Township School
District, GO, (AMBAC),
6.20%, 9/01/08 3,430,951
Aaa AAA 2,000 Doylestown Hospital
Authority, Doylestown
Hospital, (AMBAC), 6.90%,
7/01/19 2,219,120
Aaa AAA 1,405 Lycoming County, GO,
(FGIC), 6.40%, 8/15/11 1,540,765
Aaa AAA 945 Lycoming County, GO,
(FGIC), 6.40%, 8/15/11 1,036,315
NR A- 1,000 Pennsylvania, HEFA,
Elizabeth College, 7.25%,
6/15/11 1,150,140
NR A- 6,900 Pennsylvania IDA, Economic
Development, 7.00%,
1/01/11 7,853,649
NR A- 5,155 Philadelphia, Hospital and
Higher Education Facility
Authority, Presbyterian
Medical Center, 6.50%,
12/01/11 5,646,684
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 500 York County Hospital
Authority, York Hospital,
(AMBAC), 7.00%, 7/01/21 565,985
------------
$ 31,846,077
------------
GENERAL OBLIGATIONS - 4.8%
NR A $ 4,725 Chester Upland School
District, 6.375%, 9/01/12 $ 4,828,383
NR A 3,000 Chester Upland School
District, 6.375%, 9/01/21 3,038,070
A1 AA- 465 Commonwealth of
Pennsylvania, 6.75%,
1/01/07 498,182
A1 AA- 500 Commonwealth of
Pennsylvania, 6.75%,
1/01/08 534,465
A1 AA- 5,435 Commonwealth of
Pennsylvania, 6.50%,
11/01/09 5,729,251
A1 AA- 2,000 Commonwealth of
Pennsylvania, 6.375%,
9/15/12 2,074,740
NR A 3,000 Dauphin County, 6.90%,
6/02/26 3,166,320
A1 A+ 2,050 Lower Providence Township
Sewer Authority
Guaranteed, 6.75%, 5/01/22 2,142,066
NR A 1,950 McKeesport Area School
District, 5.00%, 4/01/13 1,741,194
------------
$ 23,752,671
------------
HOSPITALS - 22.6%
NR AAA $ 2,470 Allegheny County, IDA,
Presbyterian Medical
Center, 6.75%, 2/01/26 $ 2,548,842
NR A- 4,000 Butler County IDA,
Sherwood Oaks, 5.75%,
6/01/16 3,588,520
NR AA- 12,000 Chester County, HEFA,
(Main Line Health System),
5.50%, 5/15/15 11,139,000
Baa BBB 2,000 Dauphin County Hospital
Authority, Community
General Osteopathic
Hospital, 7.375%, 6/01/16 2,085,880
NR A- 10,250 Delaware County, Riddle
Memorial Hospital, 6.50%,
1/01/22 9,813,863
NR NR 4,755 Hazelton Luzerne County,
Saint Joseph Medical
Center, 8.375%, 7/01/12 4,892,895
Baa1 NR 2,670 Indiana County Hospital
Authority, Indiana
Hospital, 7.125%, 7/01/23 2,689,838
NR BBB+ 3,500 Lebanon County, Good
Samaritan Hospital, 6.00%,
11/15/18 3,148,285
Baa1 A 3,250 Lehigh County, Muhlenberg
Hospital, 6.60%, 7/15/22 3,233,620
NR BBB- 5,405 McKean County Hospital
Authority, Bradford
Hospital, 6.10%, 10/01/20 4,591,115
</TABLE>
49
<PAGE>
-------
PENNSYLVANIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - (CONTINUED)
NR BBB+ 2,615 Montgomery County,
Pottstown Medical Center,
6.875%, 11/15/20 2,597,558
A1 A+ 500 PA Hospital and Higher
Education Facility
Authority, Allegheny
General Hospital, 7.25%,
9/01/17 536,535
A BBB+ 8,500 PA Hospital and Higher
Education Facility
Authority, Albert Einstein
Medical Center, 7.625%,
4/01/11 9,054,965
Baa1 BBB+ 12,800 PA Hospital and Higher
Education Facility
Authority, Graduate Health
System, 6.625%, 7/01/21 12,228,480
Aa AA 4,500 PA Hospital and Higher
Education Facility
Authority, Children's
Hospital, 5.50%, 2/15/22 4,125,060
Baa1 A- 10,515 PA Hospital and Higher
Education Facility
Authority, Temple
University Hospital,
6.625%, 11/15/23 10,517,418
Aa AA 10,200 PA Hospital and Higher
Education Facility
Authority, Children's
Hospital, 5.00%, 2/15/21 8,745,276
Aa NR 4,750 Pottsville, Hospital
Authority, Daughters of
Charity, 5.00%, 8/15/12 4,238,093
Baa NR 4,115 Somerset County, Hospital
Authority, Somerset
County, Somerset Community
Hospital Project, 6.750%,
3/01/11 3,950,359
A NR 7,000 Washington County,
Hospital Authority,
Monongahela Valley
Hospital, 6.75%, 12/01/08 7,324,310
------------
$111,049,912
------------
HOUSING - 12.3%
NR AAA $ 1,000 Bucks County, Mortgage
Revenue Bonds, Warminster
Heights Project, Section
8-A, 6.80%, 8/01/12 $ 1,029,520
NR NR 2,680 Chester County, IDA,
8.05%, 1/01/24 2,688,120
A1 A+ 3,000 Pennsylvania HFA MF,
7.60%, 7/01/13 3,210,330
Aaa NR 3,000 Philadelphia Redevelopment
Authority, MF, 6.95%,
5/15/24 3,102,450
Aaa NR 2,175 Allegheny County
Residential Finance
Authority, SFMR, (GNMA),
7.15%, 6/01/17 2,212,410
Aa AA 5,700 Pennsylvania HFA SFMR,
(AMT), 6.75%, 4/01/16 5,816,451
Aa AA 3,730 Pennsylvania HFA SFMR,
6.90%, 4/01/17 3,834,627
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA 4,000 Pennsylvania HFA SFMR,
6.85%, 4/01/16 4,099,080
Aa AA 300 Pennsylvania HFA SFMR,
7.40%, 10/01/09 313,026
Aa AA 770 Pennsylvania HFA SFMR,
7.20%, 10/01/11 809,124
Aa AA 695 Pennsylvania HFA SFMR,
7.375%, 10/01/16 720,048
Aa AA 1,000 Pennsylvania HFA SFMR,
(AMT), Variable, 10/01/23
(1) 1,059,990
Aa AA 5,500 Pennsylvania HFA SFMR,
(AMT), 6.85%, 4/01/25 5,637,280
Aa AA 8,350 Pennsylvania HFA SFMR,
(AMT), 7.50%, 10/01/25 8,868,034
Aa AA 10,000 Pennsylvania HFA SFMR,
(AMT), 6.65%, 10/01/21 10,177,400
A1 A 4,235 Urban Redevelopment
Authority of Pittsburgh
Mortgage Revenue Bonds,
(AMT), 7.10%, 4/01/24 4,259,563
A1 A 265 Urban Redevelopment
Authority of Pittsburgh,
7.45%, 4/01/10 278,663
A1 A 1,000 Urban Redevelopment
Authority of Pittsburgh
Mortgage Revenue Bonds,
7.125%, 4/01/15 1,040,790
A1 A 1,055 Urban Redevelopment
Authority of Pittsburgh
Mortgage Revenue Bonds,
(AMT), 7.40%, 4/01/24 1,096,630
------------
$ 60,253,536
------------
INDUSTRIAL DEVELOPMENT
AUTHORITY - 8.7%
A3 A $ 6,950 Butler County IDA,
Witco Corporation Project,
5.85%, 12/01/23 $ 6,573,449
NR BBB 1,005 Clearfield County IDA,
Kmart Corporation,
6.80%, 5/15/07 1,030,095
NR A+ 4,000 Franklin County IDA,
Corning Incorporated,
6.25%, 8/01/05 4,206,280
NR AAA 8,750 Mercer County IDA,
Hillcrest Nursing Center,
0%, 1/15/13 2,475,375
A2 A 12,000 New Morgan IDA, New Morgan
Landfill, (AMT), 6.50%,
4/01/19 12,155,040
Baa2 BBB- 5,000 Pennsylvania, IDA,
Macmilliam Project, (AMT),
7.60%, 12/01/20 5,385,950
Baa1 BBB+ 4,450 Pennsylvania, IDA, Sun
Company Project, (AMT),
7.60%, 12/01/24 4,807,868
A2 A 6,025 Washington County IDA,
West Penn Power, 6.05%,
4/01/14 5,964,630
------------
$ 42,598,687
------------
</TABLE>
50
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED AIRPORTS - 1.2%
Aaa AAA $ 6,000 Philadelphia Airport,
(AMBAC), (AMT), 6.00%,
6/15/15 $ 5,903,760
------------
INSURED EDUCATION - 1.1%
Aaa AAA $ 2,500 Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), 7.15%, 9/01/21 $ 2,639,200
Aaa AAA 1,500 Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), Variable, 3/01/22
(1) 1,441,965
Aaa AAA 700 Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), Variable, 9/01/26
(1) 744,744
Aaa AAA 800 Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), 6.40%, 3/01/22 808,712
------------
$ 5,634,621
------------
INSURED GENERAL OBLIGATION - 3.0%
Aaa AAA $ 1,750 Deer Lakes School
District, (MBIA), 6.45%,
1/15/19 $ 1,792,210
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/01/20 454,701
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/01/21 427,230
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/01/22 401,407
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/01/23 377,168
Aaa AAA 4,345 Elizabeth Forward School
District, (MBIA), 0%,
9/01/24 709,582
Aaa AAA 1,460 Haverford School District,
(FGIC), 6.125%, 6/01/14 1,477,199
Aaa AAA 4,500 Keystone Oaks School
District, (AMBAC),
Variable,
9/01/16 (1) 4,348,170
Aaa AAA 1,430 Mars Area School District,
(MBIA), 0%, 3/01/14 474,245
Aaa AAA 655 Rochester Area School
District, (AMBAC), 0%,
5/01/10 278,703
Aaa AAA 2,795 Venango County, (AMBAC),
6.30%, 12/01/19 2,850,453
Aaa AAA 1,000 West Allegheny County
School District, (AMBAC),
6.60%, 2/01/09 1,034,210
------------
$ 14,625,278
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITAL - 7.1%
Aaa AAA $ 1,170 Allegheny County,
Children's Hospital of
Pittsburgh, (MBIA), 6.75%,
7/01/08 $ 1,234,175
Aaa AAA 3,750 Allegheny County, Magee-
Womens Hospital, (FGIC),
0%, 10/01/15 1,114,425
Aaa AAA 1,400 Armstrong County Saint
Francis Health Care,
(AMBAC), 6.25%, 6/01/13 1,430,296
Aaa AAA 2,500 Armstrong County Saint
Francis Health Care,
(AMBAC), 6.00%, 8/15/08 2,557,425
Aaa AAA 4,400 Bucks County, IDA, Grand
View Hospital, (AMBAC),
5.25%, 7/01/21 3,889,864
Aaa AAA 775 Carbon County, Gnaden
Memorial Hospital,
(AMBAC), 7.00%, 11/15/14 825,243
Aaa AAA 750 Erie County Hospital
Authority, Harlot Medical
Center, (AMBAC), 7.10%,
2/15/10 811,313
Aaa AAA 230 Lehigh County Health East,
Incorporated, (MBIA),
7.00%, 7/01/15 244,801
Aaa AAA 5,000 Lehigh County, St. Luke's
Hospital, (AMBAC), 6.25%,
7/01/22 5,091,850
Aaa AAA 1,000 Montgomery County,
Abington Memorial
Hospital, (AMBAC),
Variable,
6/01/11 (1) 1,111,250
Aaa AAA 5,000 Philadelphia Hospital and
Higher Education,
Pennsylvania Hospital,
(FGIC), Variable, 2/15/12
(1) 4,368,500
Aaa AAA 3,500 Sayre Health Care
Facilities Authority,
Guthrie Healthcare System,
(AMBAC), 6.00%, 3/01/21 3,490,690
Aaa AAA 1,500 Scranton-Lackawanna, Mercy
Health Systems, (MBIA),
6.90%, 1/01/23 1,577,370
Aaa AAA 7,500 Washington County,
Shadyside Hospital,
(AMBAC), 5.75%, 12/15/14 7,277,924
------------
$ 35,025,126
------------
INSURED LEASE - 4.1%
Aaa AAA $ 4,595 Harrisburg Authority,
Dauphin County, Lease
Revenue, (CGIC), 6.25%,
6/01/10 $ 4,904,335
Aaa AAA 3,000 Northumberland County,
Lease Revenue, (MBIA), 0%,
10/15/12 1,109,040
Aaa AAA 5,600 Philadelphia Muni
Authority, Lease Revenue,
(FGIC), 5.625%, 11/15/18 5,317,592
</TABLE>
51
<PAGE>
-------
PENNSYLVANIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LEASE - (CONTINUED)
Aaa AAA 10,000 Commonwealth of
Pennsylvania, Lease
Revenue, (AMBAC), 5.00%,
7/01/15 8,751,600
------------
$ 20,082,567
------------
INSURED UTILITIES - 3.9%
Aaa AAA $ 4,000 Beaver County IDA, Ohio
Edison Company, (FGIC),
7.00%, 6/01/21 $ 4,270,880
Aaa AAA 10,000 Beaver County IDA, Ohio
Edison Company, (FGIC),
7.05%, 10/01/20 10,708,500
Aaa AAA 3,800 Puerto Rico Electric Power
Authority, (FSA),
Variable, 7/01/02 (1) 4,116,578
------------
$ 19,095,958
------------
INSURED WATER & SEWER - 6.2%
Aaa AAA $ 2,750 Allegheny County, Sewer
Revenue, (FGIC), 0%,
12/01/08 $ 1,296,845
Aaa AAA 9,000 Bethlehem Authority,
Northampton and Lehigh
Counties, Water Revenue
Bonds, (MBIA), 4.875%,
11/15/14 7,805,070
Aaa AAA 2,500 City of Philadelphia,
Water and Wastewater,
(FGIC), Variable, 6/15/12
(1) 2,350,000
Aaa AAA 9,000 City of Philadelphia,
Water and Wastewater,
(CGIC), 5.50%, 6/15/15 8,441,280
Aaa AAA 2,460 City of Philadelphia,
Water and Wastewater,
(CGIC), 5.00%, 6/15/16 2,145,440
Aaa AAA 8,920 City of Philadelphia,
Water and Wastewater,
(MBIA), 5.60%, 8/01/18 8,435,555
------------
$ 30,474,190
------------
MISCELLANEOUS - 3.8%
NR AA $ 870 Pennsylvania
Infrastructure Investment
Authority, Pennvest,
6.80%, 9/01/10 $ 922,487
NR A 16,950 Pennsylvania Finance
Authority, Beaver County,
6.60%, 11/01/09 17,744,277
------------
$ 18,666,764
------------
NURSING HOMES - 1.3%
NR NR $ 3,500 Montgomery County IDA,
Geriatric Health Care
Institute, 8.375%, 7/01/23 $ 3,493,910
NR NR 1,460 Westmoreland County IDA,
Highland Health System,
9.25%, 6/01/22 1,517,860
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 1,190 Philadelphia Hospital and
Higher Education
Facilities Authority,
Philadelphia Protestant,
8.625%, 7/01/21 1,200,995
------------
$ 6,212,765
------------
SPECIAL TAX REVENUE - 0.1%
Baa1 BBB+ $ 500 Puerto Rico Special Tax
Revenue, 7.50%, 7/01/09 $ 535,485
------------
TRANSPORTATION - 0.3%
Baa1 A $ 1,500 Puerto Rico Commonwealth
Highway, 5.50%, 7/01/13 $ 1,415,115
------------
UTILITIES - 2.2%
Baa3 BB+ $ 500 Beaver County, IDA, Ohio
Edison Company, 7.75%,
9/01/24 $ 524,550
Baa1 BBB+ 3,250 Delaware County, IDA,
Philadelphia Electric
Company, 7.375%, 4/01/21 3,462,745
Baa1 BBB+ 4,070 Montgomery County, IDA,
Philadelphia Electric
Company, (AMT), 7.60%,
4/01/21 4,337,358
Baa1 A- 3,370 Puerto Rico Electric Power
Authority Power Revenue,
0%, 7/01/17 863,866
NR NR 1,500 Virgin Islands Water and
Power Authority, 7.40%,
7/01/11 1,562,595
------------
$ 10,751,114
------------
WATER & SEWER REVENUE - 0.2%
Baa1 A $ 1,000 Puerto Rico Aqueduct and
Sewer Authority, 7.90%,
7/01/07 $ 1,109,020
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $477,086,127) $491,067,330
----------
----------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio primarily invests in debt securities issued by Pennsylvania
municipalities. The ability of the issuers of debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 28.3% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.4% to 11.5% of total investments.
See notes to financial statements
52
<PAGE>
-------
Texas Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 3.7%
A NR $ 700 Brazos Higher Education
Authority, Texas Student
Loan Subordinate, 6.50%,
6/01/04 $ 727,524
Aa1 AA 250 University of Texas, 6.75%,
8/15/13 (1) 267,055
-----------
$ 994,579
-----------
ELECTRIC UTILITIES - 1.6%
NR BBB $ 500 Guam Power Authority,
5.25%, 10/01/23 $ 422,495
-----------
ESCROWED - 3.6%
Baa1 BBB $ 200 Bexar County, Texas, St.
Luke's Lutheran Hospital,
7.00%, 5/01/21 $ 227,466
Aaa NR 1,000 Central Texas Housing
Corporation Single Family,
0%, 9/01/16 270,510
Aaa AAA 85 Harris County Texas Toll
Road Unlimited Tax and
Subordinate Lien (AMBAC),
6.625%, 8/15/17 90,796
Aaa AAA 200 Montgomery County, Texas
Hospital District (FSA),
6.625%, 4/01/17 224,720
Aaa AAA 150 Texas National Research Lab
Super Collider, 6.95%,
12/01/12 167,802
-----------
$ 981,294
-----------
GENERAL OBLIGATIONS - 16.8%
Aaa AAA $1,000 Bastrop, Texas Independent
School District U.T.G.O.
(PSF), 0.00%, 2/15/13 $ 349,880
Aaa NR 500 Crandall, Texas Independent
School District U.T.G.O.
(PSF), 6.00%, 2/15/24 495,935
Aaa AAA 1,000 Cypress-Fairbanks, Texas
Independent School District
U.T.G.O. (PSF), 5.25%,
2/15/19 904,900
Aaa AAA 550 Grand Prairie, Texas
Independent School District
U.T.G.O. (PSF), 0%, 2/15/12 202,680
Aaa AA+ 350 Irving, Texas L.T.G.O.
4.875%, 9/15/14 (1) 309,544
Aaa AAA 1,000 Round Rock, Texas
Independent School District
U.T.G.O. (PSF), 5.50%,
8/01/15 948,900
Aa AA 250 Texas Veterans' Housing
Assistance U.T.G.O. (AMT),
6.45%, 6/01/23 247,420
Aa AA 690 Texas Veterans' Housing
Assistance U.T.G.O. (AMT),
6.70%, 12/01/24 697,321
Aa AA 395 Texas Veterans' Housing
Assistance U.T.G.O. (AMT),
6.80%, 12/01/23 401,980
-----------
$ 4,558,560
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - 1.9%
NR NR $ 500 Bell County, Texas HFC
Elder Care Facilities,
9.00%, 11/01/24 $ 523,725
-----------
HOSPITALS - 11.1%
NR BBB $ 500 Denison, Texas, Texoma
Medical Center, 7.10%,
8/15/24 $ 502,255
A A- 100 Ector County, Texas
Hospital District, 7.30%,
4/15/12 105,170
A A- 100 Harris County, Texas
Hospital District, 7.125%,
6/01/15 104,750
A A- 1,100 Harris County, Texas
Hospital District, Memorial
Hospital System, 6.625%,
6/01/24 1,114,696
Aa AA 250 McAllen Health Facilities,
Texas, Sisters of Mercy,
5.00%, 6/01/15 220,160
A1 NR 1,000 Tarrant County, Texas,
Methodist Health System,
6.00%, 9/01/24 971,830
-----------
$ 3,018,861
-----------
HOUSING - 4.2%
Aa NR $ 400 Kaufman, Texas HDC
Multifamily (FHA) Section
8, 6.00%, 2/01/22 $ 377,764
NR A 750 Travis County, Texas HFC
Multifamily Travis Station
Apartments, 6.75%, 4/01/19 762,435
-----------
$ 1,140,199
-----------
INDUSTRIAL DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - 7.0%
Baa1 BBB $ 450 Gulf Coast, Texas Waste
Disposal Authority,
Champion International
(AMT), 7.25%, 4/01/17 $ 481,401
A2 A+ 1,000 Port Corpus Christi, Texas,
Hoechst Celanese
Corporation, 6.875%,
4/01/17 1,048,690
Baa2 BBB 400 West Side Calhoun County
Navigation District, Texas,
Union Carbide (AMT), 6.40%,
5/01/23 380,572
-----------
$ 1,910,663
-----------
INSURED EDUCATION - 0.4%
Aaa AAA $ 100 Southwest, Texas, Southern
Methodist University
(FGIC), 6.375%, 10/01/13 $ 104,393
-----------
INSURED ELECTRIC UTILITIES - 14.5%
Aaa AAA $1,000 Austin, Texas Utility
System (FGIC), 6.25%,
5/15/16 $ 1,020,160
Aaa AAA 250 Brazos River Authority,
Texas, Houston Lighting and
Power Company (FGIC),
7.20%, 12/01/18 267,497
</TABLE>
53
<PAGE>
-------
TEXAS TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED ELECTRIC UTILITIES -
(CONTINUED)
Aaa AAA 75 Brazos River Authority,
Texas, Houston Light and
Power (AMBAC), 6.70%,
3/01/17 78,424
Aaa AAA 1,050 Corpus Christi, Texas
Utility System (MBIA),
5.20%, 7/15/13 960,561
Aaa AAA 500 Lower Colorado River
Authority Junior Lien,
Texas (FGIC), 0%, 1/01/12 183,855
Aaa AAA 605 Montgomery County, Texas
MUD #47 Water & Sewer
(AMBAC), 6.125%, 10/01/20 607,432
Aaa AAA 100 Sabine River Authority,
Texas, Utilities Electric
Company (FGIC), 6.55%,
10/01/22 103,182
Aaa AAA 1,395 Texas Municipal Power
Agency (MBIA), 0%, 9/01/13 463,405
Aaa AAA 1,000 Texas Municipal Power
Agency (MBIA), 0%, 9/01/17 254,790
-----------
$ 3,939,306
-----------
INSURED GENERAL OBLIGATION - 1.9%
Aaa AAA $ 100 Brownsville, Texas
Navigation District
(AMBAC), 6.25%, 3/01/14 $ 102,245
Aaa AAA 500 Ector County, Texas G.O.
(AMBAC), 4.25%, 2/15/10 426,335
-----------
$ 528,580
-----------
INSURED HOSPITAL - 6.6%
Aaa AAA $ 250 Coastal Bend, Texas HFC
Incarnate Word Health
Services (AMBAC), 6.30%,
1/01/17 $ 254,058
Aaa AAA 500 Harris County, Texas HFC
Hermann Hospital (MBIA),
6.375%, 10/01/24 (1) 507,320
Aaa AAA 1,000 Tyler County, Texas HFC
Mother Frances Hospital
(FGIC), 6.50%, 7/01/22 1,029,190
-----------
$ 1,790,568
-----------
INSURED LEASE/COP - 1.7%
Aaa AAA $ 500 East Texas Jails, Angelina
County Project (MBIA),
5.25%, 5/01/14 $ 459,665
-----------
INSURED TRANSPORTATION - 12.0%
Aaa AAA $ 500 Dallas-Fort Worth
International Airport,
Texas (MBIA), 6.00%,
11/01/12 $ 504,175
Aaa AAA 500 Dallas-Fort Worth
International Airport,
Texas (FGIC), 5.625%,
11/01/15 475,890
Aaa AAA 500 Harris County, Texas Toll
Road Senior Lien (AMBAC),
5.30%, 8/15/13 465,385
Aaa AAA 2,000 Harris County, Texas Toll
Road Subordinate Lien
(FGIC), 5.375%, 8/15/20 1,819,820
-----------
$ 3,265,270
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED WATER & SEWER - 1.7%
Aaa AAA $ 520 Tarrant County, Texas Water
and Improvement District
Number One (AMBAC), 4.75%,
3/01/12 $ 450,819
-----------
LEASE/COP - 0.9%
NR BBB- $ 250 Rio Grande, Texas
Independent School District
Lease, 6.75%, 7/15/10 $ 241,558
-----------
MISCELLANEOUS - 5.9%
Baa2 BB+ $ 505 Alliance Airport Authority,
Texas, American Airlines,
7.50%, 12/01/29 $ 524,180
Aaa AAA 1,000 Austin, Texas Hotel
Occupancy Tax Revenue,
5.125% (AMBAC), 11/15/19 882,970
NR NR 250 Retama Development, Texas,
Retama Racetrack, 8.75%,
12/15/18 200,000
-----------
$ 1,607,150
-----------
TRANSPORTATION - 3.7%
Ba1 BB $ 235 Dallas-Fort Worth Texas
Airport, Delta Airlines
(AMT), 7.125%, 11/01/26 $ 239,872
Baa2 BB+ 225 Dallas-Fort Worth Texas
Airport, Delta Airlines
(AMT), 7.50%, 11/01/25 233,986
NR BBB 255 Guam Airport Authority
(AMT), 6.70%, 10/01/23 254,967
Aa AA 25 Harris County, Texas Toll
Road, Subordinate Lien,
6.75%, 8/01/14 26,726
Baa3 BB+ 250 Puerto Rico Ports
Authority, American
Airlines (AMT), 6.30%,
6/01/23 242,637
-----------
$ 998,188
-----------
WATER & SEWER REVENUE - 0.8%
Aa AA $ 250 Dallas, Texas Water and
Sewer, 5.00%, 4/01/09 $ 236,018
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $26,750,393) $27,171,891
---------
---------
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Texas
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 55.3% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 0.8% to
18.4% of total investments.
See notes to financial statements
54
<PAGE>
-------
Tax Free Portfolios
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $140,218,111 $44,277,269 $192,808,845 $182,066,681
Unrealized appreciation (depreciation) 3,828,622 1,159,426 (1,554,336 ) 4,460,215
------------ ----------- ------------ ------------
Total investments, at value (Note 1A) $144,046,733 $45,436,695 $191,254,509 $186,526,896
Cash 426 687,824 1,592,566 2,048,393
Receivable for investments sold -- 35,463 -- 800,000
Interest receivable 1,411,599 596,740 2,509,768 2,949,373
Deferred organization expenses (Note 1D) 4,476 1,464 6,823 6,501
------------ ----------- ------------ ------------
Total assets $145,463,234 $46,758,186 $195,363,666 $192,331,163
------------ ----------- ------------ ------------
LIABILITIES:
Payable for when issued securities (Note 1F) $ -- $ 658,200 $ -- $ 964,896
Payable for daily variation margin on open financial
futures contracts (Note 1E) 33,469 20,719 77,031 99,875
Demand note payable (Note 5) 903,000 -- -- --
Payable to affiliates --
Trustees' fees 669 135 919 889
Custodian fees 2,924 639 3,823 --
Accrued expenses 2,157 1,327 6,104 2,522
------------ ----------- ------------ ------------
Total liabilities $ 942,219 $ 681,020 $ 87,877 $ 1,068,182
------------ ----------- ------------ ------------
Net Assets applicable to investors' interest in
Portfolio $144,521,015 $46,077,166 $195,275,789 $191,262,981
============ =========== ============ ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $140,643,966 $44,887,762 $196,718,666 $186,667,067
Unrealized appreciation (depreciation) of investments
and financial futures contracts (computed on the
basis of
identified cost) 3,877,049 1,189,404 (1,442,877 ) 4,595,914
------------ ----------- ------------ ------------
Total $144,521,015 $46,077,166 $195,275,789 $191,262,981
============ =========== ============ ============
</TABLE>
See notes to financial statements
55
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $78,851,048 $389,842,758 $477,086,127 $26,750,393
Unrealized appreciation 2,570,065 13,642,657 13,981,203 421,498
----------- ------------ ------------ -----------
Total investments, at value (Note 1A) $81,421,113 $403,485,415 $491,067,330 $27,171,891
Cash 400,411 1,075,446 4,181,885 1,058,371
Receivable for investments sold -- 3,861,470 30,000 --
Interest receivable 1,168,552 5,337,412 6,962,611 472,632
Receivable from the Investment Adviser (Note 2) -- -- -- 18,606
Deferred organization expenses (Note 1D) 2,508 11,270 13,558 1,415
----------- ------------ ------------ -----------
Total assets $82,992,584 $413,771,013 $502,255,384 $28,722,915
----------- ------------ ------------ -----------
LIABILITIES:
Payable for investments purchased $ -- $ 2,654,715 $ -- $ 479,270
Payable for daily variation margin on open financial
futures contracts (Note 1E) 21,250 66,406 -- 14,875
Payable to affiliates --
Trustees' fees 540 1,406 1,713 137
Custodian fees 1,572 5,883 -- 211
Accrued expenses 1,526 4,181 3,367 1,401
----------- ------------ ------------ -----------
Total liabilities $ 24,888 $ 2,732,591 $ 5,080 $ 495,894
----------- ------------ ------------ -----------
Net Assets applicable to investors' interest in
Portfolio $82,967,696 $411,038,422 $502,250,304 $28,227,021
============ ============== =============== ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $80,383,134 $397,350,461 $488,269,101 $27,771,750
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of
identified cost) 2,584,562 13,687,961 13,981,203 455,271
----------- ------------ ------------ -----------
Total $82,967,696 $411,038,422 $502,250,304 $28,227,021
============ ============== =============== ============
</TABLE>
See notes to financial statements
56
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $ 9,380,468 $ 2,916,273 $12,024,017 $12,313,929
----------- ----------- ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 629,148 $ 128,496 $ 835,605 $ 856,258
Compensation of Trustees not members of the Investment
Adviser's organization (Note 2) 9,186 1,335 17,185 11,255
Custodian fees (Note 2) 65,302 16,604 48,135 1,944
Interest expense (Note 5) 24,478 7,980 55,056 19,364
Legal and accounting services 23,018 20,942 27,771 26,172
Bond pricing 11,371 7,911 15,577 14,364
Amortization of organization expenses (Note 1D) 1,793 637 2,620 2,493
Printing and postage 200 -- 552 --
Registration costs 125 125 125 125
Miscellaneous 4,266 1,133 15,780 4,161
----------- ----------- ----------- -----------
Total expenses $ 768,887 $ 185,163 $1,018,406 $ 936,136
Deduct reduction of investment adviser fee (Note 2) -- 69,064 -- --
----------- ----------- ----------- -----------
Net expenses $ 768,887 $ 116,099 $1,018,406 $ 936,136
----------- ----------- ----------- -----------
Net investment income $ 8,611,581 $ 2,800,174 $11,005,611 $11,377,793
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(4,877,347) $(1,800,477) $(2,556,284) $(3,817,102)
Financial futures contracts (995,149) (721,504) (2,778,750 ) (2,415,234)
----------- ----------- ----------- -----------
Net realized loss on investments $(5,872,496) $(2,521,981) $(5,335,034) $(6,232,336)
----------- ----------- ----------- -----------
Change in unrealized appreciation --
Investments $ 7,691,430 $ 2,725,487 $3,995,907 $ 6,667,070
Financial futures contracts 166,028 98,064 537,717 280,007
----------- ----------- ----------- -----------
Net unrealized appreciation of investments $ 7,857,458 $ 2,823,551 $4,533,624 $ 6,947,077
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments $ 1,984,962 $ 301,570 $ (801,410 ) $ 714,741
----------- ----------- ----------- -----------
Net increase in net assets from operations $10,596,543 $ 3,101,744 $10,204,201 $12,092,534
============ ============ ============== ============
</TABLE>
See notes to financial statements
57
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $ 5,259,766 $26,778,322 $33,140,571 $ 1,711,252
----------- ------------ ------------ -----------
Expenses --
Investment adviser fee (Note 2) $ 310,489 $ 1,944,340 $ 2,416,419 $ 56,319
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 5,240 14,740 20,013 1,753
Custodian fees (Note 2) 20,399 91,170 -- 7,834
Interest expense (Note 5) 18,478 38,870 11,820 3,559
Legal and accounting services 23,039 35,317 38,577 16,838
Bond pricing 11,391 18,054 15,974 8,533
Amortization of organization expenses (Note 1D) 1,018 4,464 5,278 605
Registration costs -- 125 125 125
Miscellaneous 2,379 8,434 8,815 208
----------- ------------ ------------ -----------
Total expenses $ 392,433 $ 2,155,514 $ 2,517,021 $ 95,774
----------- ------------ ------------ -----------
Deduct --
Reduction of investment adviser fee (Note 2) $ -- $ -- $ -- $ 56,319
Allocation of expenses to the Investment Adviser
(Note 2) -- -- -- 18,606
----------- ------------ ------------ -----------
Total $ -- $ -- $ -- $ 74,925
----------- ------------ ------------ -----------
Net expenses $ 392,433 $ 2,155,514 $ 2,517,021 $ 20,849
----------- ------------ ------------ -----------
Net investment income $ 4,867,333 $24,622,808 $30,623,550 $ 1,690,403
----------- ------------ ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(3,665,826) $(13,015,045) $(13,832,451) $ (610,466)
Financial futures contracts (1,549,418) (4,759,465 ) (6,462,533 ) (393,285)
----------- ------------ ------------ -----------
Net realized loss on investments $(5,215,244) $(17,774,510) $(20,294,984) $(1,003,751)
----------- ------------ ------------ -----------
Change in unrealized appreciation --
Investments $ 4,573,005 $15,570,319 $16,678,284 $ 1,169,634
Financial futures contracts 195,669 1,061,635 2,323,941 50,424
----------- ------------ ------------ -----------
Net unrealized appreciation of investments $ 4,768,674 $16,631,954 $19,002,225 $ 1,220,058
----------- ------------ ------------ -----------
Net realized and unrealized gain (loss) on
investments $ (446,570) $(1,142,556 ) $(1,292,759 ) $ 216,307
----------- ------------ ------------ -----------
Net increase in net assets from operations $ 4,420,763 $23,480,252 $29,330,791 $ 1,906,710
============ ============= =============== ============
</TABLE>
See notes to financial statements
58
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 8,611,581 $ 2,800,174 $11,005,611 $ 11,377,793
Net realized loss on investment transactions (5,872,496) (2,521,981) (5,335,034 ) (6,232,336)
Change in unrealized appreciation of investments 7,857,458 2,823,551 4,533,624 6,947,077
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 10,596,543 $ 3,101,744 $10,204,201 $ 12,092,534
------------ ------------ ------------ ------------
Capital transactions --
Contributions $ 21,272,707 $ 10,355,365 $25,911,862 $ 14,779,804
Withdrawals (41,416,595) (11,778,902) (32,878,239 ) (39,641,020)
------------ ------------ ------------ ------------
Decrease in net assets resulting from capital
transactions $(20,143,888) $ (1,423,537) $(6,966,377 ) $(24,861,216)
------------ ------------ ------------ ------------
Total increase (decrease) in net assets $ (9,547,345) $ 1,678,207 $ 3,237,824 $(12,768,682)
NET ASSETS:
At beginning of year 154,068,360 44,398,959 192,037,965 204,031,663
------------ ------------ ------------ ------------
At end of year $144,521,015 $ 46,077,166 $195,275,789 $191,262,981
============== ============= ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 4,867,333 $ 24,622,808 $ 30,623,550 $ 1,690,403
Net realized loss on investment transactions (5,215,244) (17,774,510) (20,294,984 ) (1,003,751)
Change in unrealized appreciation of investments 4,768,674 16,631,954 19,002,225 1,220,058
------------ ------------ ------------- -----------
Net increase in net assets from operations $ 4,420,763 $ 23,480,252 $ 29,330,791 $ 1,906,710
------------ ------------ ------------- -----------
Capital transactions --
Contributions $ 11,350,380 $ 43,487,001 $ 38,709,755 $ 4,736,724
Withdrawals (16,808,817) (79,782,847) (102,576,381 ) (6,005,420)
------------ ------------ ------------- -----------
Decrease in net assets resulting from capital
transactions $ (5,458,437) $(36,295,846) $(63,866,626 ) $(1,268,696)
------------ ------------ ------------- -----------
Total increase (decrease) in net assets $ (1,037,674) $(12,815,594) $(34,535,835 ) $ 638,014
NET ASSETS:
At beginning of year 84,005,370 423,854,016 536,786,139 27,589,007
------------ ------------ ------------- -----------
At end of year $ 82,967,696 $411,038,422 $502,250,304 $28,227,021
============= ============== =============== ============
</TABLE>
See notes to financial statements
59
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 6,694,909 $ 1,681,554 $ 8,098,918 $ 9,191,618
Net realized gain (loss) on investment
transactions (79,923) (238,197) 610,531 459,500
Change in unrealized depreciation of investments (11,906,679) (2,832,041) (15,885,963 ) (15,894,224)
------------ ----------- ------------ ------------
Net decrease in net assets from operations $ (5,291,693) $(1,388,684) $(7,176,514 ) $ (6,243,106)
------------ ----------- ------------ ------------
Capital transactions --
Contributions $ 49,588,326 $25,061,524 $55,286,988 $ 43,549,085
Withdrawals (23,767,597) (3,620,273) (15,920,869 ) (20,939,507)
------------ ----------- ------------ ------------
Increase in net assets resulting from capital
transactions $ 25,820,729 $21,441,251 $39,366,119 $ 22,609,578
------------ ----------- ------------ ------------
Total increase in net assets $ 20,529,036 $20,052,567 $32,189,605 $ 16,366,472
NET ASSETS:
At beginning of period 133,539,324 24,346,392 159,848,360 187,665,191
------------ ----------- ------------ ------------
At end of period $154,068,360 $44,398,959 $192,037,965 $204,031,663
============== ============ ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 3,534,268 $ 19,598,942 $25,052,308 $ 1,024,502
Net realized gain (loss) on investment transactions 361,104 1,931,832 (1,606,336 ) (193,762)
Change in unrealized depreciation of investments (6,315,849) (34,629,145) (41,094,537 ) (1,491,855)
----------- ------------ ------------ -----------
Net decrease in net assets from operations $(2,420,477) $(13,098,371) $(17,648,565) $ (661,115)
----------- ------------ ------------ -----------
Capital transactions --
Contributions $28,250,170 $ 95,610,275 $113,666,177 $14,312,043
Withdrawals (8,843,182) (52,334,675) (56,232,111 ) (2,091,287)
----------- ------------ ------------ -----------
Increase in net assets resulting from capital
transactions $19,406,988 $ 43,275,600 $57,434,066 $12,220,756
----------- ------------ ------------ -----------
Total increase in net assets $16,986,511 $ 30,177,229 $39,785,501 $11,559,641
NET ASSETS:
At beginning of period 67,018,859 393,676,787 497,000,638 16,029,366
----------- ------------ ------------ -----------
At end of period $84,005,370 $423,854,016 $536,786,139 $27,589,007
============ ============== =============== ============
</TABLE>
* For the ten months ended July 31, 1994 (Note 7).
See notes to financial statements
60
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 3,814,722 $ 529,081 $ 4,491,010 $ 5,803,151
Net realized gain (loss) on investment
transactions 2,843,057 (42,421) (369,709 ) (383,574)
Change in unrealized appreciation (depreciation)
of investments 5,331,763 1,030,366 8,422,527 9,602,839
------------ ----------- ------------ ------------
Net increase in net assets from operations $ 11,989,542 $ 1,517,026 $12,543,828 $ 15,022,416
------------ ----------- ------------ ------------
Capital transactions --
Contributions $148,348,087 $23,748,943 $187,818,789 $184,212,796
Withdrawals (26,898,325) (1,019,597) (40,614,277 ) (11,670,041)
------------ ----------- ------------ ------------
Increase in net assets resulting from capital
transactions $121,449,762 $22,729,346 $147,204,512 $172,542,755
------------ ----------- ------------ ------------
Total increase in net assets $133,439,304 $24,246,372 $159,748,340 $187,565,171
NET ASSETS:
At beginning of period 100,020 100,020 100,020 100,020
------------ ----------- ------------ ------------
At end of period $133,539,324 $24,346,392 $159,848,360 $187,665,191
============== ============ ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 1,988,776 $ 12,599,045 $16,036,467 $ 333,755
Net realized gain (loss) on investment transactions (249,985) 108,306 2,426,891 (68,370)
Change in unrealized appreciation (depreciation)
of investments 3,295,330 20,473,018 21,996,791 606,518
----------- ------------ ------------ -----------
Net increase in net assets from operations $ 5,034,121 $ 33,180,369 $40,460,149 $ 871,903
----------- ------------ ------------ -----------
Capital transactions --
Contributions $75,312,856 $409,889,770 $536,041,409 $19,000,571
Withdrawals (13,428,138) (49,493,372) (79,600,940 ) (3,943,128)
----------- ------------ ------------ -----------
Increase in net assets resulting from capital
transactions $61,884,718 $360,396,398 $456,440,469 $15,057,443
----------- ------------ ------------ -----------
Total increase in net assets $66,918,839 $393,576,767 $496,900,618 $15,929,346
NET ASSETS:
At beginning of period 100,020 100,020 100,020 100,020
----------- ------------ ------------ -----------
At end of period $67,018,859 $393,676,787 $497,000,638 $16,029,366
============ ============== =============== ============
</TABLE>
* For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
61
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA PORTFOLIO COLORADO PORTFOLIO
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
------------------------------- -------------------------------
JULY 31, JULY 31, SEPT. 30, JULY 31, JULY 31, SEPT. 30,
1995 1994* 1993** 1995 1994* 1993**
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS)++:
Net expenses 0.52% 0.46%+ 0.42% + 0.25% 0.02% + 0.06%+
Net investment income 5.81% 5.43%+ 5.46% + 6.05% 5.73% + 5.60%+
PORTFOLIO TURNOVER 22% 23% 107% 52% 23% 10%
NET ASSETS, end of period (000 omitted) $144,521 $154,068 $133,539 $46,077 $44,399 $24,346
</TABLE>
++The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and/or allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
Expenses 0.40% 0.35%+ 0.35%+
Net investment income 5.90% 5.40%+ 5.31%+
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT PORTFOLIO MICHIGAN PORTFOLIO
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
------------------------------- -------------------------------
JULY 31, JULY 31, SEPT. 30, JULY 31, JULY 31, SEPT. 30,
1995 1994* 1993** 1995 1994* 1993**
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS):
Net expenses 0.53% 0.47%+ 0.46% + 0.48% 0.47%+ 0.44% +
Net investment income 5.77% 5.40%+ 5.45% + 5.85% 5.48%+ 5.46% +
PORTFOLIO TURNOVER 29% 10% 10% 54% 45% 20%
NET ASSETS, end of period (000 omitted) $195,276 $192,038 $159,848 $191,263 $204,032 $187,665
+ Annualized.
* For the ten months ended July 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
62
<PAGE>
-------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<CAPTION>
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MINNESOTA PORTFOLIO NEW JERSEY PORTFOLIO
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
------------------------------- -------------------------------
JULY 31, JULY 31, SEPT. 30, JULY 31, JULY 31, SEPT. 30,
1995 1994* 1993** 1995 1994* 1993**
-------- -------- --------- -------- -------- ---------
RATIOS (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS):
Net expenses 0.47% 0.45% + 0.40%+ 0.52% 0.50%+ 0.50% +
Net investment income 5.83% 5.50% + 5.58%+ 5.96% 5.62%+ 5.67% +
PORTFOLIO TURNOVER 76% 20% 10% 54% 25% 12%
NET ASSETS, end of period (000 omitted) $82,968 $84,005 $67,019 $411,038 $423,854 $393,677
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA PORTFOLIO TEXAS PORTFOLIO
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
------------------------------- -------------------------------
JULY 31, JULY 31, SEPT. 30, JULY 31, JULY 31, SEPT. 30,
1995 1994* 1993** 1995 1994* 1993**
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS)++ :
Net expenses 0.49% 0.48%+ 0.50% + 0.08% 0.00% + 0.03%+
Net investment income 6.02% 5.66%+ 5.71% + 6.20% 5.69% + 5.82%+
PORTFOLIO TURNOVER 44% 21% 17% 49% 27% 8%
NET ASSETS, end of period (000 omitted) $502,250 $536,786 $497,001 $28,227 $27,589 $16,029
++The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and/or allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
Expenses 0.35% 0.37%+ 0.42%+
Net investment income 5.93% 5.32%+ 5.43%+
</TABLE>
+ Annualized.
* For the ten months ended July 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
63
<PAGE>
-------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Arizona Tax Free Portfolio (Arizona Portfolio), Colorado Tax Free Portfolio
(Colorado Portfolio), Connecticut Tax Free Portfolio (Connecticut Portfolio),
Michigan Tax Free Portfolio (Michigan Portfolio), Minnesota Tax Free Portfolio
(Minnesota Portfolio), New Jersey Tax Free Portfolio (New Jersey Portfolio),
Pennsylvania Tax Free Portfolio (Pennsylvania Portfolio) and Texas Tax Free
Portfolio (Texas Portfolio), collectively the Portfolios, are registered under
the Investment Company Act of 1940 as non-diversified open-end management
investment companies which were organized as trusts under the laws of the State
of New York on May 1, 1992. The Declarations of Trust permit the Trustees to
issue interests in the Portfolios. The following is a summary of significant
accounting policies of the Portfolios. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES -- The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes on
any taxable income of the Portfolios because each investor in the Portfolios are
ultimately responsible for the payment of any taxes. Since some of the
Portfolios' investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios normally
must satisfy the applicable source of income and diversification requirements
(under the Internal Revenue Code) in order for their respective investors to
satisfy them. The Portfolios will allocate at least annually among their
respective investors each investor's distributive share of the Portfolios' net
taxable (if any) and tax-exempt investment income, net realized capital
gains, and any other items of income, gain, loss, deductions or credit. Interest
income received by the Portfolios on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain its
status as income exempt from federal income tax when allocated to each
Portfolio's investors. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax preference
item for investors.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by a Portfolio in connection
with its organization are being amortized on the straight-line basis over five
years beginning on the date each Portfolio commenced operations.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by a Portfolio ("margin maintenance") each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's investment
in financial futures contracts is designed only to hedge against anticipated
future changes in interest rates. Should interest rates move unexpectedly, the
Portfolio may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Portfolios may engage in
when-issued and delayed delivery transactions. The Portfolio records when-issued
securities on trade date and maintains security positions such that sufficient
liquid assets will be available to make payments for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are
marked-to-market daily and begin accruing interest on settlement date.
G. OTHER -- Investment transactions are accounted for on a trade date basis.
64
<PAGE>
-------
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to each Portfolio.
The fee is based upon a percentage of average daily net assets plus a percentage
of gross income (i.e., income other than gains from the sale of securities).
For the year ended July 31, 1995, each Portfolio paid advisory fees as follows:
<TABLE>
<CAPTION>
AMOUNT EFFECTIVE RATE*
---------- ----------------
<S> <C> <C>
Arizona $ 629,148 0.42%
Colorado 128,496 0.28%
Connecticut 835,605 0.44%
Michigan 856,258 0.44%
Minnesota 310,489 0.37%
New Jersey 1,944,340 0.47%
Pennsylvania 2,416,419 0.48%
Texas 56,319 0.21%
</TABLE>
To enhance the net income of the Colorado Portfolio and the Texas Portfolio, BMR
made a reduction in its fee in the amount of $69,064 and $56,319, respectively,
and $18,606 of expenses related to the operation of the Texas Portfolio were
allocated to BMR.
Except as to Trustees of the Portfolios who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolios out of such investment adviser fee. Investors Bank & Trust
Company (IBT), an affiliate of EVM and BMR, serves as custodian of the
Portfolios. Pursuant to the custodian agreements, IBT receives a fee reduced by
credits which are determined based on the average daily cash balances each
Portfolio maintains with IBT. Certain of the officers and Trustees of the
Portfolios are officers and directors/trustees of the above organizations.
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 the Trustees Deferred Compensation Plan. For the
year ended July 31, 1995, no significant amounts have been deferred.
* Advisory fees paid as a percentage of average daily net assets.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the year ended July 31, 1995 were as follows:
<TABLE>
<CAPTION>
ARIZONA PORTFOLIO COLORADO PORTFOLIO CONNECTICUT PORTFOLIO MICHIGAN PORTFOLIO
------------------- -------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Purchases $31,754,220 $ 23,720,614 $ 55,774,738 $101,893,489
Sales 42,996,767 25,026,530 58,525,219 116,259,363
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO NEW JERSEY PORTFOLIO PENNSYLVANIA PORTFOLIO TEXAS PORTFOLIO
------------------- -------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Purchases $62,647,201 $219,433,205 $220,102,046 $ 13,166,608
Sales 62,259,757 237,114,073 264,136,096 13,804,505
</TABLE>
65
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned by each Portfolio at July 31, 1995, as computed on a federal income tax
basis, were as follows:
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Aggregate Cost $140,218,111 $ 44,277,269 $192,808,845 $182,066,681
------------ ------------ ------------ ------------
Gross unrealized appreciation $ 6,026,055 $ 1,602,238 $ 3,281,263 $ 6,693,457
Gross unrealized depreciation 2,197,433 442,812 4,835,599 2,233,242
------------ ------------ ------------ ------------
Net unrealized appreciation (depreciation) $ 3,828,622 $ 1,159,426 $(1,554,336 ) $ 4,460,215
============== ============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Aggregate Cost $ 78,851,048 $389,842,758 $477,086,127 $ 26,750,393
------------ ------------ ------------ ------------
Gross unrealized appreciation $ 2,866,555 $ 15,128,046 $17,966,732 $ 777,979
Gross unrealized depreciation 296,490 1,485,389 3,985,529 356,481
------------ ------------ ------------ ------------
Net unrealized appreciation $ 2,570,065 $ 13,642,657 $13,981,203 $ 421,498
============== ============== =============== ==============
</TABLE>
- --------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other portfolios and funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Each Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests or settle transactions. Interest is
charged to each portfolio or fund based on its borrowings at an amount above
either the bank's adjusted certificate of deposit rate, a variable adjusted
certificate of deposit rate, or a federal funds effective rate. In addition, a
fee computed at an annual rate of 1/4 of 1% on the $20 million committed
facility and on the daily unused portion of the $100 million discretionary
facility is allocated among the participating funds and portfolios at the end of
each quarter. The Portfolios did not have any significant borrowings or
allocated fees during the period. For the Connecticut Portfolio, the average
daily loan balance for the year ended July 31, 1995 was $1,583,254 and the
average interest rate was 7.27%. The maximum borrowings outstanding at any point
during the year were $6,997,000. At July 31, 1995, the Arizona Portfolio had a
$903,000 loan outstanding pursuant to this line of credit.
66
<PAGE>
-------
- --------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolios regularly trade in financial instruments with off-balance sheet
risk in the normal course of their investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment a Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at July 31, 1995 is
as follows:
<TABLE>
<CAPTION>
FUTURES
CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION APPRECIATION
- -------------- ---------------- ------------------------- -------- ---------------
<S> <C> <C> <C> <C>
Arizona 9/95 63 U.S. Treasury Bonds Short $ 48,427
Colorado 9/95 39 U.S. Treasury Bonds Short 29,978
Connecticut 9/95 145 U.S. Treasury Bonds Short 111,459
Michigan 9/95 188 U.S. Treasury Bonds Short 135,699
Minnesota 9/95 40 U.S. Treasury Bonds Short 14,497
New Jersey 9/95 125 U.S. Treasury Bonds Short 45,304
Texas 9/95 28 U.S. Treasury Bonds Short 33,773
</TABLE>
At July 31, 1995 each Portfolio had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
The Pennsylvania Portfolio had no obligations outstanding at July 31, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Portfolios changed their fiscal year end from September 30, to July 31,
effective July 31, 1994.
67
<PAGE>
-------
Independent Auditors' Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF:
ARIZONA TAX FREE PORTFOLIO
COLORADO TAX FREE PORTFOLIO
CONNECTICUT TAX FREE PORTFOLIO
MICHIGAN TAX FREE PORTFOLIO
MINNESOTA TAX FREE PORTFOLIO
NEW JERSEY TAX FREE PORTFOLIO
PENNSYLVANIA TAX FREE PORTFOLIO
TEXAS TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Arizona Tax Free Portfolio, Colorado Tax Free
Portfolio, Connecticut Tax Free Portfolio, Michigan Tax Free Portfolio,
Minnesota Tax Free Portfolio, New Jersey Tax Free Portfolio, Pennsylvania Tax
Free Portfolio and Texas Tax Free Portfolio as of July 31, 1995 , and the
related statements of operations for the year then ended, and the statements of
changes in net assets and the supplementary data for the year ended July 31,
1995 and the ten months ended July 31, 1994 and for the period from the start of
business, February 1, 1993, to September 30, 1993. These financial statements
and supplementary data are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on the financial statements and
supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1995, by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other audit procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of Arizona Tax Free Portfolio,
Colorado Tax Free Portfolio, Connecticut Tax Free Portfolio, Michigan Tax Free
Portfolio, Minnesota Tax Free Portfolio, New Jersey Tax Free Portfolio,
Pennsylvania Tax Free Portfolio and Texas Tax Free Portfolio at July 31, 1995,
the results of their operations, the changes in their net assets and their
supplementary data for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
AUGUST 25, 1995
68
<PAGE>
-------
Investment Management
- --------------------------------------------------------------------------------
FUNDS
- --------------------------------------------------------------------------------
PORTFOLIOS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspaper of New
England, Inc.
JAMES B. HAWKES
SAMUEL L. HAYES, III
Vice President, Trustee
Jacob H. Schiff Professor of
Investment
ROBERT B. MACINTOSH
Banking, Harvard University
Graduate
Vice President
School of Business Administration
JAMES L. O'CONNOR
NORTON H. REAMER
Treasurer
President and Director,
THOMAS OTIS
United Asset Management
Corporation
Secretary
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
OFFICERS TIMOTHY T. BROWSE
Vice President and Portfolio
Manager of
THOMAS J. FETTER
Michigan and Texas Tax Free
Portfolios
President
JAMES L. O'CONNOR
JAMES B. HAWKES
Treasurer
Vice President, Trustee
THOMAS OTIS
ROBERT B. MACINTOSH
Secretary
Vice President of Arizona,
Colorado,
Connecticut, Michigan,
Minnesota,
INDEPENDENT TRUSTEES
New Jersey, Pennsylvania
and Texas
DONALD R. DWIGHT
Tax Free Portfolios
President, Dwight Partners, Inc.
Portfolio Manager of
Minnesota and
Chairman, Newspaper of New
England, Inc.
New Jersey Tax Free
Portfolios
SAMUEL L. HAYES, III
CYNTHIA J. CLEMSON
Jacob H. Schiff Professor of
Investment
Vice President and
Portfolio Manager of
Banking, Harvard University
Graduate
Arizona and Colorado Tax
Free Portfolios
School of Business Administration
DAVID C. REILLY
NORTON H. REAMER
Vice President and
Portfolio Manager of
President and Director,
Pennsylvania Tax Free
Portfolio
United Asset Management
Corporation
NICOLE ANDERES
JOHN L. THORNDIKE
Vice President and
Portfolio Manager of
Director, Fiduciary Company
Incorporated
Connecticut Tax Free
Portfolio
JACK L. TREYNOR
Investment Adviser and Consultant
<PAGE>
-------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
70
<PAGE>
-------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Funds, including its distribution
plan, sales charges and expenses. Please read the prospectus carefully before
you invest or send money.
EATON VANCE
MUNICIPALS TRUST
24 FEDERAL STREET
BOSTON, MA 02110
C-TFCSRC
<PAGE>
<TABLE>
<CAPTION>
EV TRADITIONAL
MUNICIPAL FUNDS
- -------------------------------------------------------------------------------------------
<S> <C>
EV TRADITIONAL ARIZONA MUNICIPALS FUND EV TRADITIONAL MINNESOTA MUNICIPALS FUND
EV TRADITIONAL COLORADO MUNICIPALS FUND EV TRADITIONAL NEW JERSEY MUNICIPALS FUND
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND
EV TRADITIONAL MICHIGAN MUNICIPALS FUND EV TRADITIONAL TEXAS 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 THE STATE
TAXES (IF ANY) DESCRIBED UNDER "THE FUNDS' INVESTMENT OBJECTIVES" IN THIS
PROSPECTUS. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED
OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE
AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO
OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A
SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated March 29, 1996 for the Funds,
as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares ............................. 17
The Funds' Financial Highlights ....................... 4 Reports to Shareholders ............................... 18
The Funds' Investment Objectives ...................... 6 The Lifetime Investing Account/Distribution Options ... 18
How the Funds and the Portfolios Invest their Assets .. 6 The Eaton Vance Exchange Privilege .................... 19
Organization of the Funds and the Portfolios .......... 10 Eaton Vance Shareholder Services ...................... 20
Management of the Funds and the Portfolios ............ 12 Distributions and Taxes ............................... 20
Service Plans ......................................... 14 Performance Information ............................... 21
Valuing Fund Shares ................................... 14 Appendix -- State Specific Information ................ 23
How to Buy Fund Shares ................................ 15
</TABLE>
- -------------------------------------------------------------------------------
PROSPECTUS DATED MARCH 29, 1996
<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
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------------------------------
ARIZONA COLORADO CONNECTICUT MICHIGAN MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Adviser Fee
(after any applicable fee
reduction) 0.42% 0.13% 0.44% 0.44% 0.37% 0.47% 0.45% 0.00%
Other Expenses (including
Service Plan Fees and
after expense reductions) 0.38 0.33 0.07 0.45 0.30 0.03 0.01 0.21
---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses
(after reductions) 0.80% 0.46% 0.51% 0.89% 0.67% 0.50% 0.46% 0.21%
==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
EXAMPLE
-------------------------------------------------------------------------------------------------------------------------------
An investor would pay the following maximum initial sales charge and expenses on a $1,000 investment, assuming (a) 5% annual
return and (b) redemption at the end of each period:
ARIZONA COLORADO CONNECTICUT MICHIGAN MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 45 $42 $43 $ 46 $ 44 $42 $42 $40
3 Years 62 52 53 65 58 53 52 44
5 Years 80 62 65 85 73 64 62 49
10 Years 133 93 99 143 118 98 93 63
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year, except that
Service Plan Fees for the Arizona Fund, Colorado Fund, Michigan Fund, Minnesota
Fund and Texas Fund are estimated for the fiscal year ending July 31, 1996
(assuming the Service Plan in effect on February 1, 1996). Absent a fee
reduction (in the case of the Investment Adviser Fee) and/or an expense
allocation (in the case of Other Expenses), expenses of the following Funds
would have been the following percentage of average daily net assets: Arizona
Fund Other Expenses would have been 0.99% and Total Operating Expenses would
have been 1.56%; Colorado Fund Investment Adviser Fee and Other Expenses would
have been 0.28% and 1.10%, respectively, and Total Operating Expenses would have
been 1.53%; Connecticut Fund Other Expenses would have been 3.01% and Total
Operating Expenses would have been 3.46%; Michigan Fund Other Expenses would
have been 0.68% and Total Operating Expenses would have been 1.27%; Minnesota
Fund Other Expenses would have been 0.81% and Total Operating Expenses would
have been 1.33%; New Jersey Fund Other Expenses would have been 1.98% and Total
Operating Expenses would have been 2.46%; Pennsylvania Fund Other Expenses would
have been 2.62% and Total Operating Expenses would have been 3.08%; and Texas
Fund Investment Adviser Fee and Other Expenses would have been 0.21% and 2.32%,
respectively, and Total Operating Expenses would have been 2.68%.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Trust retained the services of an
investment adviser for the Fund and the Fund's assets were invested directly in
the type of securities being held by its corresponding Portfolio.
The Example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. Federal regulations
require the Example to assume a 5% annual return, but actual return will vary.
For further information regarding the expenses of the Funds and the Portfolios
see "The Funds' Financial Highlights", "Organization of the Funds and the
Portfolios", "Management of the Funds and the Portfolios" and "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," "How to Redeem Fund Shares" and "Eaton
Vance Shareholder Services."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 12.
Other investment companies with different distribution arrangements and fees are
investing in the Portfolios and 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, Eaton Vance Distributors, Inc.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------------
ARIZONA FUND COLORADO FUND CONNECTICUT FUND MICHIGAN FUND
-------------------- ------------------- -------------------- --------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
-------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.390 $10.000 $ 9.180 $10.000 $10.100 $10.000 $ 9.220 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.432 $ 0.253 $ 0.450 $ 0.256 $ 0.553 $ 0.153 $ 0.419 $ 0.261
Net realized and unrealized gain
(loss) on investments 0.142 (0.563) 0.062++ (0.761) 0.012 0.111 0.063 (0.733)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.574 $(0.310) $ 0.512 $(0.505) $ 0.565 $ 0.264 $ 0.482 $(0.472)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.432) $(0.253) $(0.450) $(0.256) $(0.553) $(0.153) $(0.419) $(0.261)
In excess of net investment income(3) (0.022) (0.047) (0.012) (0.059) (0.022) (0.011) (0.023) (0.047)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.454) $(0.300) $(0.462) $(0.315) $(0.575) $(0.164) $(0.442) $(0.308)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.510 $ 9.390 $ 9.230 $ 9.180 $10.090 $10.100 $ 9.260 $ 9.220
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 6.44% (3.23)% 5.89% (5.22)% 5.89% 2.66% 5.52% (4.88)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period
(000 omitted) $ 2,465 $ 2,412 $ 1,971 $ 2,342 $ 1,115 $ 163 $ 4,475 $ 6,366
Ratio of net expenses to average
daily net assets(2) 1.60% 1.75%+ 1.26% 1.38%+ 0.51% 0.48%+ 1.69% 1.69%+
Ratio of net investment income to
average daily net assets 4.73% 4.14%+ 5.04% 4.20%+ 5.46% 4.83%+ 4.70% 4.18%+
<FN>
**For the periods indicated, the operating expenses of the Funds and the Portfolios may reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income (loss) per share and the ratios
would have been:
</FN>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (LOSS) PER SHARE $ 0.376 $ 0.181 $ 0.368 $ 0.146 $ 0.249 $(0.045) $ 0.398 $ 0.235
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average
daily net assets):
Expenses(2) 2.21% 2.93%+ 2.18% 3.18%+ 3.51% 6.73%+ 1.92% 2.11%+
Net investment income (loss) 4.12% 2.96%+ 4.12% 2.40%+ 2.46% (1.42)%+ 4.47% 3.76%+
<FN>
Footnotes:
*For the Arizona, Colorado, Connecticut, Michigan, Minnesota, New Jersey, Pennsylvania and Texas Funds, the Financial Highlights
are for the period from the start of business, December 13, 1993, December 10, 1993, April 19, 1994, December 7, 1993, December
9, 1993, April 13, 1994, June 1, 1994 and December 8, 1993, respectively, to July 31, 1994.
+Annualized.
++The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(1)Total return is calculated assuming purchase at the net asset value on the first day and a sale at the net asset value on the
last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value on the
payable date. Total return is computed on a non-annualized basis.
(2)Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(3)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.
(4)Prior to February 1, 1996, the Arizona Fund, Colorado Fund, Michigan Fund, Minnesota Fund and Texas Fund each made distribution
fee payments pursuant to a Distribution Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------------------------------------
MINNESOTA FUND NEW JERSEY FUND PENNSYLVANIA FUND TEXAS FUND
------------------- -------------------- -------------------- --------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.370 $10.000 $ 9.940 $10.000 $10.050 $10.000 $ 9.230 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.440 $ 0.267 $ 0.576 $ 0.161 $ 0.577 $ 0.044 $ 0.455 $ 0.267
Net realized and unrealized gain
(loss) on investments (0.048)++ (0.582) 0.054+ (0.044)++ (0.062)++ 0.104 (0.008) (0.709)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.392 $(0.315) $ 0.630 $ 0.117 $ 0.515 $ 0.148 $ 0.447 $(0.442)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.440) $(0.267) $(0.576) $(0.161) $(0.577) $(0.044) $(0.455) $(0.267)
In excess of net investment income(3) (0.022) (0.048) (0.014) (0.016) (0.008) (0.054) (0.032) (0.061)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.462) $(0.315) $(0.590) $(0.177) $(0.585) $(0.098) $(0.487) $(0.328)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.300 $ 9.370 $ 9.980 $ 9.940 $ 9.980 $10.050 $ 9.190 $ 9.230
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 4.45% (3.29)% 6.62% 1.19% 5.41% 1.49% 5.16% (4.61)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period
(000 omitted) $ 3,688 $ 4,952 $ 1,712 $ 296 $ 1,487 $ 95 $ 469 $ 1,147
Ratio of net expenses to average
daily net assets(2) 1.47% 1.51%+ 0.50% 0.43%+ 0.46% 1.69%+ 1.01% 1.08%+
Ratio of net investment income to
average daily net assets 4.84% 4.33%+ 5.65% 4.11%+ 5.58% 2.76%+ 5.25% 4.53%+
<FN>
**For the periods indicated, the operating expenses of the Funds and the Portfolios may reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income (loss) per share and the ratios
would have been:
</FN>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (LOSS) PER SHARE $ 0.394 $ 0.209 $ 0.375 $(0.237) $ 0.307 $(0.258) $ 0.254 $ 0.024
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average
daily net assets):
Expenses(2) 1.98% 2.45%+ 2.47% 10.59%+ 3.07% 20.95%+ 3.33% 5.20%+
Net investment income (loss) 4.33% 3.38%+ 3.68% (6.05)%+ 2.97% (16.50)%+ 2.93% 0.41%+
<FN>
Footnotes:
*For the Arizona, Colorado, Connecticut, Michigan, Minnesota, New Jersey, Pennsylvania and Texas Funds, the Financial Highlights
are for the period from the start of business, December 13, 1993, December 10, 1993, April 19, 1994, December 7, 1993, December
9, 1993, April 13, 1994, June 1, 1994 and December 8, 1993, respectively, to July 31, 1994.
+Annualized.
++The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(1)Total return is calculated assuming purchase at the net asset value on the first day and a sale at the net asset value on the
last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value on
the payable date. Total return is computed on a non-annualized basis.
(2)Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(3)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.
(4)Prior to February 1, 1996, the Arizona Fund, Colorado Fund, Michigan Fund, Minnesota Fund and Texas Fund each made distribution
fee payments pursuant to a Distribution Plan.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio"). This
investment structure is commonly referred to as a "master/feeder" structure.
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 ARIZONA MUNICIPALS FUND (the "Arizona Fund") seeks to provide
current income exempt from regular federal income tax and Arizona State personal
income taxes. The Arizona Fund seeks to meet its objective by investing its
assets in the Arizona Municipals Portfolio (the "Arizona Portfolio").
EV TRADITIONAL COLORADO MUNICIPALS FUND (the "Colorado Fund") seeks to provide
current income exempt from regular federal income tax and Colorado State
personal income taxes. The Colorado Fund seeks to meet its objective by
investing its assets in the Colorado Municipals Portfolio (the "Colorado
Portfolio").
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND (the "Connecticut Fund") seeks to
provide current income exempt from regular federal income tax and Connecticut
State personal income taxes. The Connecticut Fund seeks to meet its objective by
investing its assets in the Connecticut Municipals Portfolio (the "Connecticut
Portfolio").
EV TRADITIONAL MICHIGAN MUNICIPALS FUND (the "Michigan Fund") seeks to provide
current income exempt from regular federal income tax and Michigan State and
City income and single business taxes in the form of an investment exempt from
Michigan intangibles tax. The Michigan Fund seeks to meet its objective by
investing its assets in the Michigan Municipals Portfolio (the "Michigan
Portfolio").
EV TRADITIONAL MINNESOTA MUNICIPALS FUND (the "Minnesota Fund") seeks to provide
current income exempt from regular federal income tax and regular Minnesota
State personal income taxes. The Minnesota Fund seeks to meet its objective by
investing its assets in the Minnesota Municipals Portfolio (the "Minnesota
Portfolio").
EV TRADITIONAL NEW JERSEY MUNICIPALS FUND (the "New Jersey Fund") seeks to
provide current income exempt from regular federal income tax and New Jersey
State personal income taxes. The New Jersey Fund seeks to meet its objective by
investing its assets in the New Jersey Municipals Portfolio (the "New Jersey
Portfolio").
EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND (the "Pennsylvania Fund") seeks to
provide current income exempt from regular federal income tax and Pennsylvania
State and local taxes in the form of an investment exempt from Pennsylvania
personal property taxes. The Pennsylvania Fund seeks to meet its objective by
investing its assets in the Pennsylvania Municipals Portfolio (the "Pennsylvania
Portfolio").
EV TRADITIONAL TEXAS MUNICIPALS FUND (the "Texas Fund") seeks to provide current
income exempt from regular federal income taxes. The Texas Fund seeks to meet
its objective by investing its assets in the Texas Municipals Portfolio (the
"Texas Portfolio"). The State of Texas does not impose a State income tax on
individuals.
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- --------------------------------------------------------------------------------
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
THE FUND'S 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. The Minnesota Portfolio intends to
invest is assets so as to comply with the requirement that, in order for exempt
interest dividends that are derived from interest income from specified
Minnesota sources to be exempt from regular Minnesota State personal income
taxes, 95% or more of the exempt interest dividends that are paid to all
shareholders by the Minnesota Fund must be derived from such specified Minnesota
sources.
At least 80% of the net assets of the New Jersey Portfolio, at least 75% of the
net assets of the Colorado Portfolio, Connecticut Portfolio and Texas Portfolio,
and at least 70% of the net assets of the Arizona Portfolio, Michigan Portfolio,
Minnesota Portfolio and Texas 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. Municipal notes include bond anticipation, tax anticipation
and revenue anticipation notes. Bond, tax and revenue anticipation notes are
short-term obligations that will be retired with the proceeds of an anticipated
bond issue, tax revenue or facility revenue, respectively. Under normal market
conditions, a Portfolio will invest at least 65% (in the case of the Minnesota
Portfolio, generally 95% or more) of its total assets in obligations issued by
its respective State or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax (the "AMT") for individual investors. As at
July 31, 1995, the Portfolios had invested in such obligations as follows (as a
percentage of net assets): Arizona Portfolio (5.2%); Colorado Portfolio (9.3%);
Connecticut Portfolio (7.5%); Michigan Portfolio (5.6%); Minnesota Portfolio
(14.3%); New Jersey Portfolio (18.8%); Pennsylvania Portfolio (18.2%); and Texas
Portfolio (19.5%). At July 31, 1995, the Portfolios limited their investment in
obligations subject to the AMT (and, in the case of the Minnesota Portfolio, the
Minnesota alternative minimum tax) to not more than 20% of net assets. The
Portfolios are no longer subject to such limitation. Distributions to corporate
investors of certain interest income may also be subject to the AMT. For
corporate shareholders of the Minnesota Fund, exempt interest dividends
attributable to interest on all municipal obligations (whenever issued) eligible
for exemption from regular Minnesota State personal income taxes are included in
taxable income and in alternative minimum taxable income for purposes of
determining the Minnesota franchise tax imposed on corporations subject to
Minnesota taxation. 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 affected by economic developments and by legislation and
other governmental activities in that State. To the extent that a Portfolio's
assets are concentrated in municipal obligations of issuers of a single State,
that Portfolio may be subject to an increased risk of loss. Each Portfolio may
also invest in obligations issued by the governments of Puerto Rico, the U.S.
Virgin Islands and Guam. See the Appendix to this Prospectus for a description
of 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
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 not exceed 35%
of net assets. In the event the rating of an obligation held by a Portfolio is
downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the
Portfolio's credit quality limitations. For a description of municipal
obligation ratings, see the Statement of Additional Information.
The net asset value of shares of a Fund will change in response to fluctuations
in prevailing interest rates and changes in the value of the securities held by
its corresponding Portfolio. When interest rates decline, the value of
securities held by a Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by a Portfolio will affect the principal value of (and possibly
the income earned on) on such obligations. In addition, the values of such
securities are affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of a security and in the ability of
the issuer to make payments of principal and interest may also affect the value
of a Portfolio's investments. The amount of information about the financial
condition of an issuer of municipal obligations may not be as extensive as that
made available by corporations whose securities are publicly traded. An
investment in shares of a Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by the Investment Adviser and its affiliates, holds a major portion or
all of such securities. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Portfolio
could find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15% of
its 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 and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, a Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation.
----------------------------------------------------------------------------
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL
POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE
PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE
INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES
WERE MADE IN A FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT
OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR CONSIDERED
APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
----------------------------------------------------------------------------
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL
FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series. Each share represents an equal proportionate
beneficial interest in a Fund. When issued and outstanding, each Fund's shares
are fully paid and nonassessable by the Trust and redeemable as described under
"How to Redeem Fund Shares." Shareholders are entitled to one vote for each full
share held. Fractional shares may be voted proportionately. Shares have no
preemptive or conversion rights and are freely transferable. In the event of the
liquidation of a Fund, shareholders of that Fund are entitled to share pro rata
in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in a
Fund should be aware that the Fund, unlike mutual funds which directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing its assets in an interest in its corresponding Portfolio,
which is a separate investment company with an identical investment objective
(although the Fund may temporarily hold a de minimis amount of cash). Therefore,
a Fund's interest in the securities owned by its corresponding Portfolio is
indirect. In addition to selling an interest to its corresponding Fund, a
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in a Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions of the Portfolios, see "The Funds" Investment Objectives" and "How
the Funds and the Portfolios Invest their Assets". Further information regarding
investment practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as the
advantages and disadvantages of the two-tier format. The Trustees believe that
the structure offers opportunities for substantial growth in the assets of the
Portfolios, and affords the potential for economies of scale for each Fund, at
least when the assets of its corresponding Portfolio exceed $500 million.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and the
nonfundamental investment policies of each Fund and Portfolio may be changed by
the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of that Fund or the investors in that Portfolio, as the case
may be. Any such change of an investment objective will be preceded by thirty
days' advance written notice to the shareholders of the Fund or the investors in
the Portfolio, as the case may be. In the event a Fund withdraws all of its
assets from its corresponding Portfolio, or the Board of Trustees of the Trust
determines that the investment objective of such Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of such Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. A Fund's
investment performance may be affected by a withdrawal of all its assets from
its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest in
a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in a Portfolio may be adversely affected by the
actions of a larger investor in the Portfolio. For example, if a large investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may hold fewer securities, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured mutual funds which have large or institutional
investors.
Until 1992, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate investment
company are a relatively new development in the mutual fund industry and,
therefore, the Funds may be subject to additional regulations than historically
structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will terminate
120 days after the complete withdrawal of a Fund or any other investor in the
Portfolio, unless either the remaining investors, by unanimous vote at a meeting
of such investors, or a majority of the Trustees of the Portfolio, by written
instrument consented to by all investors, agree to continue the business of the
Portfolio. This provision is consistent with treatment of the Portfolios as
partnerships for federal income tax purposes. See "Distributions and Taxes" for
further information. Whenever a Fund as an investor in a Portfolio is requested
to vote on matters pertaining to the Portfolio (other than the termination of
the Portfolio's business, which may be determined by the Trustees of the
Portfolio without investor approval), the Fund will hold a meeting of Fund
shareholders and will vote its interest in the Portfolio for or against such
matters proportionately to the instructions to vote for or against such matters
received from Fund shareholders. A Fund shall vote shares for which it receives
no voting instructions in the same proportion as the shares for which it
receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Trust and
the Trustees of each Portfolio are the same. Such procedures require each Board
to take action to resolve any conflict of interest between a Fund and its
corresponding Portfolio, and it is possible that the creation of separate Boards
may be considered. For further information concerning the Trustees and officers
of each of the Trust and the Portfolios, see the Statement of Additional
Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each Portfolio,
BMR manages each Portfolio's investments and affairs. 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:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
</TABLE>
For the fiscal year ended July 31, 1995, each Portfolio paid (or, absent a fee
reduction, would have paid) advisory fees equivalent to the percentage of
average daily net assets stated below.
<TABLE>
<CAPTION>
NET ASSETS AS OF
PORTFOLIO JULY 31, 1995 ADVISORY FEE
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Arizona $144,521,015 0.42%
Colorado 46,077,166 0.28%(1)
Connecticut 195,275,789 0.44%
Michigan 191,262,981 0.44%
Minnesota 82,967,696 0.37%
New Jersey 411,038,422 0.47%
Pennsylvania 502,250,304 0.48%
Texas 28,227,021 0.21%(2)
<FN>
(1) To enhance the net income of the Colorado Portfolio, BMR made a reduction of its advisory fee in the amount of $69,064.
(2) To enhance the net income of the Texas Portfolio, BMR made a reduction of its advisory fee in the full amount of such fee
and BMR was allocated $18,606 of expenses related to the operation of such Portfolio.
</TABLE>
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. Eaton Vance Corp., through its subsidiaries and
affiliates, engages primarily in investment management, administration and
marketing activities.
Nicole Anderes has acted as the portfolio manager of the Connecticut Portfolio
since January, 1994 and the Texas Portfolio since December 1, 1995. She joined
Eaton Vance and BMR as a Vice President in January 1994. Prior to joining Eaton
Vance, she was a Vice President and portfolio manager at Lazard Freres Asset
Management (1992-1994) and a Vice President and Manager -- Municipal Research at
Roosevelt & Cross (1978-1992).
Timothy T. Browse has acted as the portfolio manager of the Michigan Portfolio
since it commenced operations and the Pennsylvania Portfolio since December 1,
1995. He has been a Vice President of Eaton Vance and of BMR since 1993 and an
employee of Eaton Vance since 1992. Prior to joining Eaton Vance, he was a
municipal bond trader at Fidelity Management & Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Arizona Portfolio
since January 1, 1994. Ms. Clemson has been a Vice President of Eaton Vance and
BMR since 1993 and an employee of Eaton Vance since 1985.
Robert B. MacIntosh has acted as the portfolio manager of the New Jersey
Portfolio since it commenced operations. Mr. MacIntosh has been a Vice President
of Eaton Vance since 1991 and of BMR since 1992. Prior to joining Eaton Vance,
he was a portfolio manager at Fidelity Management & Research Company
(1986-1991).
David C. Reilly has acted as the portfolio manager of the Minnesota and Colorado
Portfolios since December 1, 1995. He has been a Vice President of Eaton Vance
since 1991 and of BMR since 1992. Prior to joining Eaton Vance, he was a Vice
President and a municipal bond analyst at Scudder, Stevens & Clark (1984-1991).
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions, BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolios and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Funds or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the administrative
services agreement, or by EVD under the distribution agreement.
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 July 31, 1995,
each Fund made service fee payments (as a percentage of average daily net
assets) as follows: Arizona Fund (0.20% annualized); Colorado Fund (0.20%
annualized); Connecticut Fund (0.01%); Michigan Fund (0.20% annualized);
Minnesota Fund (0.20% annualized); New Jersey Fund (0.01%); Pennsylvania Fund
(0.01%) and Texas Fund (0.20% annualized). The service fee payments made by the
Arizona, Colorado, Michigan, Minnesota and Texas Funds were made 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, which is a wholly-owned subsidiary of
Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
----------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
----------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the effective public offering price, which price is based on the effective net
asset value per share plus the applicable sales charge. A Fund receives the net
asset value, while the sales charge is divided between the Authorized Firm and
the Principal Underwriter. The Principal Underwriter will furnish the names of
Authorized Firms to an investor upon request. An Authorized Firm may charge its
customers a fee in connection with transactions executed by that Firm. A Fund
may suspend the offering of shares at any time and may refuse an order for the
purchase of shares. Shares of each Fund are offered for sale only in States
where such shares may be legally sold.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement to
purchase additional shares during a 13-month period or special purchase
programs. Complete details of how investors may purchase shares at reduced sales
charges under a Statement of Intention or Right of Accumulation are available
from Authorized Firms or 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
<FN>
*No sales charge is payable at the time of purchase on investments of $1 million or more. 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. For the Connecticut Fund, New Jersey Fund and Pennsylvania Fund, such purchases made before March 27, 1995
will be subject to a CDSC of 1% in the event of certain redemptions within 18 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, BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
Shares of a Fund may be sold at net asset value to current and retired Directors
and Trustees of Eaton Vance funds, including the Portfolios; to officers and
employees and clients of Eaton Vance and its affiliates; to registered
representatives and employees of Authorized Firms; and bank employees who refer
customers to registered representatives of Authorized Firms; and to such
persons' spouses and children under the age of 21 and their beneficial accounts.
Shares may also be issued at net asset value (1) in connection with the merger
of an investment company with a Fund, (2) to investors making an investment as
part of a fixed fee program whereby an entity unaffiliated with the Investment
Adviser provides multiple investment services, such as management, brokerage and
custody, (3) where the amount invested represents redemption proceeds from a
mutual fund unaffiliated with Eaton Vance, if the redemption occurred no more
than 60 days' prior to the purchase of Fund shares and the redeemed shares were
subject to a sales charge, (4) 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 shown 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. 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.
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IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
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HOW TO REDEEM FUND SHARES
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A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to First Data Investor Services Group. In addition, in some cases,
good order may require the furnishing of additional documents such as where
shares are registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by First
Data Investor Services Group, 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.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or repurchase)
will not be sent until the check (including a certified or cashier's check)
received for the shares purchased has cleared. Payment for shares tendered for
redemption may be delayed up to 15 days from the purchase date when the purchase
check has not yet cleared. Redemptions or repurchases may result in a taxable
gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the right
to redeem accounts with balances of less than $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. For the Connecticut Fund, New Jersey Fund and Pennsylvania Fund such
purchases made before March 27, 1995 will be subject to a CDSC of 1% in the
event of certain redemptions made within 18 months of purchase. In addition,
certain shares of the Arizona Fund, Colorado Fund, Michigan Fund, Minnesota Fund
and Texas Fund purchased prior to February 1, 1996 and redeemed within the first
year of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a CDSC equal to 1% of the net asset
value of redeemed shares. The CDSC will be retained by the Principal
Underwriter. The CDSC will be imposed on an amount equal to the lesser of the
current market value or the original purchase price of the shares redeemed.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends or distributions that have been
reinvested in additional shares. In determining whether a CDSC is applicable to
a redemption, the calculation will be made in a manner that results in the
lowest possible rate being charged. It will be assumed that redemptions are made
first from any shares in the shareholder's account that are not subject to a
CDSC.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a shareholder
reinvests redemption proceeds within 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. In addition, the CDSC applicable to shares of
the Arizona Fund, Colorado Fund, Michigan Fund, Minnesota Fund and Texas Fund
purchased prior to February 1, 1996 will be waived for shares redeemed (1)
pursuant to a Withdrawal Plan (see "Eaton Vance Shareholder Services"), (2) as
part of a distribution from a retirement plan qualified under Section 401,
403(b) or 457 of the Code, or (3) as part of a minimum required distribution
from other tax-sheltered retirement plans.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
Consistent with applicable law, duplicate mailings of shareholder reports and
certain other Fund information to shareholders residing at the same address may
be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, FIRST DATA INVESTOR SERVICES GROUP, 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 First Data Investor
Services Group.
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 First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA, 02104 (please provide the name of the shareholder, the
Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Funds'
dividend disbursing agent, First Data Investor Services Group, BOS725, P.O. Box
1559, Boston, MA 02104. The currently effective option will appear on each
account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will
be reinvested in additional shares.
Cash Option -- Dividends and capital gains
will be paid in cash.
The Share Option will be assigned if no other option is
specified. Distributions, including those reinvested, will be reduced by any
withholding required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal Service
as not deliverable or which remain uncashed for six months or more will be
reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name" account
with an Authorized Firm, all recordkeeping, transaction processing and payments
of distributions relating to the beneficial owner's account will be performed by
the Authorized Firm, and not by the Fund and its Transfer Agent. Since the Fund
will have no record of the beneficial owner's transactions, a beneficial owner
should contact the Authorized Firm to purchase, redeem or exchange shares, to
make changes in or give instructions concerning the account, or to obtain
information about the account. The transfer of shares in a "street name" account
to an account with another dealer or to an account directly with a Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Firm.
Before establishing a "street name" account with an investment firm, or
transferring the account to another investment firm, an investor wishing to
reinvest distributions should determine whether the firm which will hold the
shares allows reinvestment of distributions in "street name" accounts.
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 subject 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). Such exchange offers are available only
in States where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
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.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group for additional
information concerning the exchange privilege. Applications and prospectuses of
other funds are available from Authorized Firms or the Principal Underwriter.
The prospectus for each fund describes its investment objectives and policies,
and shareholders should obtain a prospectus and consider these objectives and
policies carefully before requesting an exchange.
Shares of certain other funds for which Eaton Vance acts as investment adviser
or administrator may be exchanged for Fund shares on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase of shares subject 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 First Data Investor Services Group provided
the investor has not disclaimed in writing the use of the privilege. To effect
such exchanges, call First Data Investor Services Group at 800-262-1122 or,
within Massachusetts, 617-573-9403, Monday through Friday, 9:00 a.m. to 4:00
p.m. (Eastern Standard Time). Shares acquired by telephone exchange must be
registered in the same name(s) and with the same address as the shares being
exchanged. Neither the Funds, the Principal Underwriter nor First Data Investor
Services Group will be responsible for the authenticity of exchange instructions
received by telephone, provided that reasonable procedures to confirm that
instructions communicated are genuine have been followed. Telephone instructions
will be tape recorded. In times of drastic economic or market changes, a
telephone exchange may be difficult to implement. An exchange may result in a
taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
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THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, is available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund being purchased may be mailed directly to First Data Investor Services
Group, BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
dividends are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments
of $50 or more may be made automatically each month or quarter from the
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "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 REPURCHASED OR REDEEMED SHARES
MAY REINVEST AT NET ASSET VALUE ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE
TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, or,
provided that the shares repurchased or redeemed have been held for at least
60 days, in shares of any of the other funds offered by the Principal
Underwriter subject to an initial sales charge, provided that the reinvestment
is effected within 60 days after such repurchase or redemption, and the
privilege has not been used more than once in the prior 12 months. Shares are
sold to a reinvesting shareholder at the next determined net asset value
following timely receipt of a written purchase order by the Principal
Underwriter or by the fund the shares of which are being purchased (or by such
fund's transfer agent). The privilege is also available to shareholders of the
funds listed under "The Eaton Vance Exchange Privilege" who wish to reinvest
such redemption or repurchase proceeds in shares of a Fund. 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
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SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the last day of each month or the
next business day thereafter. Each Fund anticipates that for tax purposes the
entire distribution, whether paid in cash or reinvested in additional shares of
the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the day that
collected funds for the purchase of Fund shares are available at the Transfer
Agent. Shareholders of a Fund will receive timely federal income tax information
as to the tax-exempt or taxable status of all distributions made by the Fund
during the calendar year. A Fund's net realized capital gains, if any, consist
of the net realized capital gains allocated to the Fund by its corresponding
Portfolio for tax purposes, after taking into account any available capital loss
carryovers; a Fund's net realized capital gains, if any, will be distributed at
least once a year, usually in December.
Sales charges paid upon a purchase of Fund shares cannot be taken into account
for purposes of determining gain or loss on a redemption or exchange of the
shares before the 91st day after their purchase to the extent shares of a Fund
or of another fund are subsequently acquired pursuant to a Fund's reinvestment
or exchange privilege. Any disregarded amounts will result in an adjustment to
the shareholder's tax basis in some or all of any other shares acquired.
Each Fund intends to qualify as a regulated investment company under the 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.
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AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS
UNDER THE CODE, THE PORTFOLIOS ALSO DO NOT PAY FEDERAL INCOME OR EXCISE
TAXES.
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Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. Distributions are taxed
in the manner described above whether paid in cash or reinvested in additional
shares of a Fund. Tax-exempt distributions received from a Fund are includable
in the tax base for determining the taxability of social security and railroad
retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons who
are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
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FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share of the Fund on the last day of the period and annualizing the
resulting figure. A taxable-equivalent yield is computed by using the tax-exempt
yield figure and dividing by 1 minus the tax rate. Each Fund's average annual
total return is determined by multiplying a hypothetical initial purchase order
of $1,000 by the average annual compounded rate of return (including capital
appreciation/depreciation, and distributions paid and reinvested) for the stated
period and annualizing the result. The average annual total return calculation
assumes that the maximum sales charge is deducted from the initial $1,000
purchase order and that all distributions are reinvested at the net asset value
on the reinvestment dates during the period. The Funds may publish annual and
cumulative total return figures from time to time. Each Fund may also quote
total return for the period prior to commencement of operations which would
reflect the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge.
Each Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a Fund's net asset value per share would be reduced if a sales charge
were taken into account. The Fund's performance may be compared in publications
to the performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of the Fund's current yield 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 paid by Eaton Vance,
the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets (and, in
the case of the Minnesota Portfolio, generally 95% or more) in the obligations
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. The
Connecticut Portfolio may invest in municipal obligations of Puerto Rico, the
U.S. Virgin Islands and Guam, the interest on which cannot be taxed by any State
under federal law. Set forth below is certain economic and tax information
concerning the States in which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there can
be no assurance that particular bond issues may not be adversely affected by
changes in economic, political or other conditions. Unless stated otherwise, the
ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
ARIZONA. Arizona's economy is primarily based on the service, high-tech
manufacturing, construction and tourism industries, as well as the military. The
State experienced rapid economic and population growth in the 1980s, which has
slowed somewhat in the 1990s. The problems associated with such growth (air
quality, transportation and public infrastructure) continue to be addressed by
the State legislature. The State's unemployment rate in June 1995 was 5.1%,
below the national rate of 5.6%.
The State's ability to raise revenues is limited by Constitutional and
legislative restrictions on property tax increases. There is also a limit on
annual spending. The State does not issue general obligation bonds, but relies
on pay-as-you-go capital outlays, revenue bonds and certificates of
participation to finance projects. Each of these projects is individually rated
based on its specific creditworthiness.
ARIZONA TAXES. Based upon the advice of Arizona tax counsel, the management of
the Fund believes that under Arizona law, dividends paid by the Fund will be
exempt from Arizona income tax imposed on individuals, corporations and estates
and trusts that are subject to Arizona taxation to the extent such dividends are
excluded from gross income for federal income tax purposes and are derived from
interest payments on Arizona obligations. In addition, dividends paid by the
Fund will be exempt from Arizona income tax imposed on such persons, though
included in gross income for federal income tax purposes, to the extent such
dividends are derived from interest payments on direct obligations of the United
States. Other distributions from the Fund, including distributions derived from
net short-term and long-term capital gains, are generally not exempt from
Arizona income tax.
Interest or indebtedness and other related expenses which are incurred or
continued by a shareholder to purchase or carry shares of the Fund generally
will not be deductible for Arizona income tax purposes.
COLORADO. Colorado's economy began to improve in the late 1980s, recovering from
a recession largely caused by contractions in the energy, high technology and
construction industries. The recovery has been fueled, in part, by large public
construction projects, net in-migration, a healthy tourist economy, and
increases in the wholesale and retail trade sector and the general services
sector. Momentum is sufficient that the Office of State Planning and Budgeting
has pronounced that Colorado's "slower growth pattern mimics that of the United
States, although it is not as severe as the nation's", even though most of the
large public works projects are completed and the boom in net migration begins
to ease. Employment in the service and trade industries represents approximately
54.4% of the State's nonagricultural wage and salary jobs, and government
employment represents approximately 15.9%. Manufacturing represents only 10.8%
and, while total jobs in the sector is increasing, manufacturing is slowly
falling as a percentage of total employment, due in part to a concentration in
defense-related production. Colorado's unemployment rate was 3.7% in August
1995, below the national rate of 5.6%. Colorado added 41,000 jobs in the twelve
months ended August 1995, a 2.3% increase from the prior year. There is no State
general obligation debt outstanding.
COLORADO TAXES. In the opinion of Kutak Rock, special Colorado tax counsel to
the Fund, provided that the Fund qualifies as a regulated investment company
under the Code, and the Portfolio is treated as a partnership for federal income
tax purposes, individuals, trusts, estates, and corporations who are holders of
the Fund and who are subject to the Colorado income tax will not be subject to
Colorado tax on Fund dividends to the extent that: (a) such dividends qualify as
exempt-interest dividends of a regulated investment company under Section
852(b)(5) of the Code and are derived from interest received by the Fund on
obligations of Colorado or any of its political subdivisions issued on or after
May 1, 1980 or (b) obligations of the United States or its possessions to the
extent included in federal taxable income. To the extent that Fund distributions
are attributable to sources not described in the preceding sentences, such as
long or short-term capital gains, such distributions will not be exempt from
Colorado income tax. There are no municipal income taxes in Colorado. As
intangibles, shares in the Fund will be exempt from Colorado property taxes.
CONNECTICUT. Historically, Connecticut's economic structure has been
concentrated in manufacturing, including a heavy component of defense-related
industries, which increases the State's vulnerability to economic cycles and to
declines in federal government defense spending. More recently, Connecticut's
level of manufacturing activity has declined, but this has been partially offset
by extensive urban development, a large insurance sector, relocations of
corporate headquarters to Connecticut (specifically to Fairfield County), and
the extension of other service sectors. As of June 1995, the unemployment rate
in Connecticut on a seasonally adjusted basis was 5.1%, as compared to a rate of
5.6% nationwide.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. The State has about $6 billion of general obligation bonds
outstanding, of which more than half have been issued for general State
purposes. The remaining general obligation bonds were issued for highway
construction, mass transit, and rental housing. Debt indicators have been rising
and are high at $1,850 per capita. Certain Connecticut municipalities have
experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. Regional economic difficulties, reductions
in revenues, and increased expenses could lead to further fiscal problems for
the State and its political subdivisions, authorities, and agencies. This could
result in declines in the value of their outstanding obligations, reductions in
their ability to pay interest and principal thereon, and increases in their
future borrowing costs.
General obligations of the State of Connecticut are rated AA-, Aa and AA+ by
S&P, Moody's and Fitch, respectively.
CONNECTICUT TAXES. Based upon the advice of tax counsel, the management of the
Connecticut Fund believes that under Connecticut law, shareholders of the
Connecticut Fund will not be subject to the Connecticut personal income tax on
the Connecticut taxable income of individuals, trusts, and estates in the case
of distributions received from the Connecticut Fund to the extent that such
distributions qualify as exempt-interest dividends for federal income tax
purposes and are derived from interest on tax-exempt obligations issued by or on
behalf of the State of Connecticut and its political subdivisions or the
authorities, instrumentalities, or districts of any of them, or on tax-exempt
obligations the interest on which Connecticut is prohibited from taxing by
federal law that are issued by the governments of Puerto Rico, the U.S. Virgin
Islands and Guam.
Other distributions from the Connecticut Fund, including dividends attributable
to obligations of issuers in other states and all long-term and short-term
capital gains, will not be exempt from the Connecticut personal income tax,
except that capital gain dividends derived from obligations issued by or on
behalf of the State of Connecticut or its political subdivisions may not be
subject to such tax. Distributions from the Connecticut Fund that constitute
items of tax preference for purposes of the federal alternative minimum tax will
not be subject to the net Connecticut minimum tax applicable to taxpayers
subject to the Connecticut personal income tax and required to pay the federal
alternative minimum tax, to the extent qualifying as exempt-interest dividends
derived from obligations issued by or on behalf of the State of Connecticut and
its political subdivisions or the authorities, instrumentalities, or districts
of any of them, or from obligations the interest on which Connecticut is
prohibited from taxing by federal law that are issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam, but other distributions from the
Fund that constitute items of tax preference for purposes of the federal
alternative minimum tax could cause liability for the net Connecticut minimum
tax. The Connecticut Fund will report annually to its shareholders the
percentage and source, on a state-by-state basis, of interest income received by
the Connecticut Fund on municipal bonds during the preceding year.
Distributions from investment income and capital gains, including
exempt-interest dividends derived from interest that is exempt from Connecticut
personal income tax and federal income tax, will be subject to the Connecticut
Corporation Business Tax if received by a corporation subject to such tax,
except for any portion therof that might qualify for the dividends-received
deduction provided under that tax, and all such distributions may be subject to
state and local taxes in states other than Connecticut.
MICHIGAN. Michigan has long had a large representation in and is dominated by
the automobile industry and related industries and tends to be more vulnerable
to economic cycles than other states and the nation as a whole. As of August,
1995 Michigan's unemployment rate was 5.1%, as compared to the national rate of
5.6%. In March, 1994, Michigan voters approved changes to the tax system
resulting in, among other things, an increase in the sales tax rate, a reduction
in the income tax rate and the creation of a statewide property tax.
Michigan's general obligation debt is rated A1, AA and AA, by Moody's, S&P and
Fitch, respectively.
MICHIGAN TAXES. The Michigan Fund has received an opinion from Butzel Long,
special Michigan tax counsel to the Michigan Fund, to the effect that
shareholders of the Michigan Fund who are subject to the Michigan state income
tax, municipal income tax or single business tax will not be subject to such
taxes on their Michigan Fund dividends to the extent that such distributions are
exempt-interest dividends for federal income tax purposes and are attributable
to interest on obligations held by the Michigan Portfolio and allocated to the
Michigan Fund which is exempt from regular federal income tax, is not a tax
preference item under the federal alternative minimum tax and is exempt from
Michigan State and City income taxes, Michigan single business tax and in the
form of an investment exempt from the Michigan intangibles tax ("Michigan
tax-exempt obligations"). Other distributions with respect to shares of the
Michigan Fund including, but not limited to, long or short-term capital gains,
will be subject to the Michigan income tax or single business tax and may be
subject to the city income taxes imposed by certain Michigan cities. The opinion
also provides that shares of the Michigan Fund will be exempt from the Michigan
intangibles tax to the extent the Michigan Portfolio's assets consist of
Michigan tax-exempt obligations and any other securities or obligations that are
exempt from the Michigan intangibles tax.
MINNESOTA. Minnesota relies heavily on a progressive individual income tax and a
retail sales tax for revenue, which results in a fiscal system unusually
sensitive to economic conditions. Economic and State fiscal conditions have
improved. As of August 1995, the State unadjusted unemployment rate was 2.6%
compared with a national rate of 5.6%. Unaudited information indicates that the
State ended fiscal year 1995 with a General Fund balance of $921 million.
The State's general obligation bonds are rated Aa1, AA+ and AAA, by Moody's,
S&P and Fitch, respectively. In March 1993, S&P revised the outlook on Minnesota
debt from Negative to Stable.
MINNESOTA TAXES. In the opinion of Faegre & Benson, special Minnesota tax
counsel to the Fund, provided that the Fund qualifies as a "regulated investment
company" under the Code and subject to the discussion in the paragraph below,
exempt-interest dividends paid by the Fund will be exempt from the regular
Minnesota personal income tax imposed on individuals, estates and trusts that
are subject to Minnesota taxation to the extent that such dividends qualify as
exempt-interest dividends of a regulated investment company under section
852(b)(5) of the Internal Revenue Code which are derived from interest income on
tax-exempt obligations of Minnesota, or its political or governmental
subdivisions, municipalities, governmental agencies or instrumentalities
("Minnesota Sources"); provided, however, such exemption from the regular
Minnesota personal income tax is available only if the portion of the
exempt-interest dividends from such Minnesota Sources that is paid to all
shareholders represents 95% or more of the exempt-interest dividends that are
paid by the Fund. For this purpose, provided that the Portfolio is taxed
federally as a partnership and not as a corporation, the Fund will be treated as
owning its proportionate share of the assets of the Portfolio and the income
derived from such assets. The Fund and the Portfolio intend to invest their
respective assets so that each will meet the 95% test. However, if the 95% test
is not met, all exempt-interest dividends that are paid by the Fund will be
subject to the regular Minnesota personal income tax. Even if the 95% test is
met, to the extent that exempt-interest dividends paid by the Fund are not
derived from the Minnesota Sources referred to in the first sentence of this
paragraph, they will be subject to the regular Minnesota personal income tax.
Other distributions of the Fund, including distributions derived from net
short-term and long-term capital gains, are generally not exempt from the
regular Minnesota personal income tax imposed on individuals, estates and
trusts.
Legislation enacted in 1995 provides that it is the intent of the Minnesota
legislature that interest income on obligations of Minnesota governmental units,
including obligations of the Minnesota Sources described above, and
exempt-interest dividends that are derived from interest income on such
obligations, be included in the net income of individuals, estates, and trusts
for Minnesota income tax purposes if it is judicially determined that the
exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income on
obligations of governmental issuers located in other states, or exempt-interest
dividends derived from such obligations, is so included. This provision applies
to taxable years that begin during or after the calendar year in which such
judicial decision becomes final, regardless of the date on which the obligations
were issued, and other remedies apply for previous taxable years. The United
States Supreme Court recently denied certiorari in an Ohio case which upheld an
exemption for interest income on obligations of Ohio governmental issuers, even
though interest income on obligations of non-Ohio governmental issuers was
subject to tax. However, it cannot be predicted whether a similar case will be
brought in Minnesota or elsewhere, or what the outcome of such case would be.
Minnesota imposes an alternative minimum tax on individuals, estates, and trusts
that is based, in part, on such taxpayers' federal alternative minimum taxable
income. Accordingly, exempt-interest dividends that constitute tax preference
items for purposes of the federal alternative minimum tax, even though they are
derived from the Minnesota Sources described in the paragraph above will be
included in the base upon which such Minnesota alternative minimum tax is
computed. In addition, the entire portion of exempt-interest dividends that is
derived from sources other than the Minnesota Sources described above also is
subject to the Minnesota alternative minimum tax imposed on individuals, estates
and trusts. Furthermore, should the 95% test that is described above fail to be
met, all of the exempt-interest dividends that are paid by the Fund, including
all of those derived from the Minnesota Sources described above, will be subject
to the Minnesota alternative minimum tax imposed on such shareholders.
Distributions from the Fund will be included in taxable income and in
alternative minimum taxable income, for purposes of determining the Minnesota
franchise tax imposed on corporations subject to Minnesota taxation. Such
distributions may also be taken into account in certain cases in determining the
minimum fee that is imposed on corporations, S corporations, and partnerships.
Interest on indebtedness which is incurred and continued by an individual, a
trust or an estate to purchase or carry shares of the Fund generally will not be
deductible for regular Minnesota personal income tax purposes or Minnesota
alternative minimum tax purposes.
NEW JERSEY. The fiscal year 1995 budget included total spending of $15.5
billion. However, the proposed fiscal year 1996 budget (for the fiscal period
ending June 30, 1996) includes total spending of $15.987 billion, or a 3.14%
increase over fiscal 1995. In addition, New Jersey has adopted a 10% personal
income tax cut retroactive to January 1, 1995. Furthermore, on June 26, 1995,
the New Jersey Legislature passed an additional 15% reduction to take effect
January 1, 1996. State officials estimate the revenue loss resulting from these
tax cuts at over $1 billion for fiscal 1996. To accommodate the tax cut, the
fiscal 1996 budget would rely on non-recurring revenues and the use of prior
years' surplus. Also a major focus of the spending reductions has been employer
contributions to retiree health care and pension systems, which were cut by over
$863 million in fiscal 1995. There can be no assurance that the tax cuts will
not have an adverse impact on the State's finances and the demand for municipal
bonds in the State.
New Jersey's general obligation debt is rated Aa1, AA+ and AA+ by Moody's,
S&P and Fitch, respectively.
NEW JERSEY TAXES. The New Jersey Fund intends to satisfy New Jersey's statutory
requirements for treatment as a "Qualified Investment Fund." The Fund has
obtained an opinion of its special tax counsel, Wilentz, Goldman & Spitzer,
P.A., that, provided the New Jersey Fund limits its investments to those
described in this Prospectus and otherwise satisfies such statutory
requirements, shareholders of the New Jersey Fund which are individuals, estates
or trusts will not be required to include in their New Jersey gross income
distributions from the New Jersey Fund that are attributable to interest or gain
realized by the New Jersey Fund from obligations the interest on which is exempt
from regular federal income tax, is not a tax preference item under the federal
minimum tax and is exempt from New Jersey State personal income tax or other
obligations statutorily free from New Jersey taxation. However, with regard to
corporate shareholders, such counsel is also of the opinion that distributions
from the New Jersey Fund will not be excluded from net income and shares of the
New Jersey Fund will not be excluded from investment capital in determining New
Jersey corporation business (franchise) and corporation income taxes for
corporate shareholders.
PENNSYLVANIA. Pennsylvania has long had a large representation in the steel,
mining and manufacturing industries and adverse conditions in those or other
significant industries within Pennsylvania may from time to time have a
correspondingly adverse effect on specific issuers within Pennsylvania or on
anticipated revenue to the Commonwealth. In recent years Pennsylvania's economy
has become more diversified with major new sources of growth in the service
sector, including trade, medical and the health services, education and
financial institutions. The unadjusted unemployment rate for Pennsylvania was
5.5% for August 1995 versus the national rate of 5.6%.
The Governor's fiscal year 1996 budget contained no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending
increased 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million. The State Tax
Stabilization Reserve Fund had a balance at March 31, 1995 of $65.3 million. The
fiscal year 1996 budget projects a $3.2 million fiscal year-end unappropriated
surplus.
Pennsylvania's general obligation debt is rated "AA-" by S&P and Fitch and "A1"
by Moody's.
PENNSYLVANIA TAXES. Based upon the advice of tax counsel, the management of the
Pennsylvania Fund believes that under Pennsylvania law interest derived by the
Pennsylvania Fund from obligations which are statutorily free from taxation in
Pennsylvania ("Exempt Obligations") are not taxable on pass through to
shareholders for purposes of the Pennsylvania personal income tax. The term
"Exempt Obligations" includes (i) those obligations issued by the Commonwealth
of Pennsylvania and its political subdivisions, agencies and instrumentalities,
the interest from which is statutorily free from state taxation in the
Commonwealth of Pennsylvania, and (ii) certain qualifying obligations of U.S.
territories and possessions, or U.S. Government obligations. Distributions
attributable to most other sources, including capital gains, will not be exempt
from Pennsylvania personal income tax.
Corporate shareholders that are subject to the Pennsylvania corporate net income
tax will not be subject to corporate net income tax on distributions of interest
made by the Pennsylvania Fund, provided such distributions are attributable to
Exempt Obligations. Distributions of capital gain attributable to Exempt
Obligations are subject to the Pennsylvania corporate net income tax. An
investment in the Pennsylvania Fund is also exempt from the Pennsylvania Gross
Premiums tax.
Shares of the Pennsylvania Fund which are held by individual shareholders who
are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the obligations
held by the Pennsylvania Portfolio consist of Exempt Obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal property
taxes.
For individual shareholders who are residents of the City of Philadelphia,
distributions of interest derived from Exempt Obligations will not be taxable
for purposes of the Philadelphia School District Investment Net Income Tax
("Philadelphia School District Tax"), provided that the Pennsylvania Portfolio
reports to its investors the percentage of Exempt Obligations held by it for the
year. The Pennsylvania Portfolio will report such percentage to its investors.
TEXAS. Employment in Texas continued to expand during the 1990s. During August
1995, non-farm employment in Texas reached 8.92 million. Over the past year,
Texas has gained more than 126,000 jobs, an increase of 1.4%, with most of the
growth occurring in the services and trade sectors of the economy. Texas mining
employment (which is 95% oil and gas) has, however, experienced a slight decline
of 4.7%. Unemployment as of August, 1995 was 6.7% versus the national rate of
5.6%.
The State finished the fiscal year ended August 31, 1994 with a 200 million
operating deficit in the General Revenue Fund. However, there was still a $587
million balance in the General Revenue Fund, or 3.2% of expenditures.
General obligations of Texas are rated AA, AA and AA+ by S&P, Moody's and
Fitch, respectively. Both S&P and Fitch have a stable outlook for the State.
TEXAS TAXES. Texas does not impose a state income tax on individuals. To the
extent that distributions from the Texas Fund are included in a corporate
shareholder's surplus, they will be subject to the Texas franchise tax that is
based on net worth.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for June, 1995 was approximately 13.9%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The federal budget proposals being currently
considered by the U.S. Congress include the elimination of Section 936, a
federal tax credit program credited with encouraging economic development in
Puerto Rico. The fate of Section 936 cannot be determined at this time. There
can be no assurance that the elimination of the credit available under Section
936 will not have a negative impact on Puerto Rico's economy and the credit
quality (and value) of Puerto Rican bonds.
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 stable outlook on Puerto Rico on April 26, 1994.
<PAGE>
[LOGO]
EV TRADITIONAL
MUNICIPAL
FUNDS
PROSPECTUS
MARCH 29, 1996
EV TRADITIONAL ARIZONA MUNICIPALS FUND
EV TRADITIONAL COLORADO MUNICIPALS FUND
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND
EV TRADITIONAL MICHIGAN MUNICIPALS FUND
EV TRADITIONAL MINNESOTA MUNICIPALS FUND
EV TRADITIONAL NEW JERSEY MUNICIPALS FUND
EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND
EV TRADITIONAL TEXAS 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, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-C3/96P
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
March 29, 1996
<TABLE>
<CAPTION>
EV TRADITIONAL MUNICIPAL FUNDS
<S> <C>
EV TRADITIONAL ARIZONA MUNICIPALS FUND EV TRADITIONAL MINNESOTA MUNICIPALS FUND
EV TRADITIONAL COLORADO MUNICIPALS FUND EV TRADITIONAL NEW JERSEY MUNICIPALS FUND
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND
EV TRADITIONAL MICHIGAN MUNICIPALS FUND EV TRADITIONAL TEXAS MUNICIPALS FUND
</TABLE>
24 Federal Street
Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Fund's Part II (a "Part II") provides information
solely about a Fund and its corresponding Portfolio. Where appropriate Part I
includes cross-references to the relevant sections of Part II.
TABLE OF CONTENTS Page
PART I
Additional Information about Investment Policies .................... 1
Investment Restrictions ............................................. 8
Trustees and Officers ............................................... 9
Investment Adviser and Administrator ................................ 10
Custodian ........................................................... 13
Services for Accumulation ........................................... 14
Service for Withdrawal .............................................. 14
Determination of Net Asset Value .................................... 14
Investment Performance .............................................. 15
Taxes ............................................................... 16
Principal Underwriter ............................................... 18
Service Plan ........................................................ 19
Portfolio Security Transactions ..................................... 20
Other Information ................................................... 21
Independent Certified Public Accountants ............................ 22
Financial Statements ................................................ 23
Appendix ............................................................ 24
PART II
EV Traditional Arizona Municipals Fund .............................. a-1
EV Traditional Colorado Municipals Fund ............................. b-1
EV Traditional Connecticut Municipals Fund .......................... c-2
EV Traditional Michigan Municipals Fund ............................. d-1
EV Traditional Minnesota Municipals Fund ............................ e-1
EV Traditional New Jersey Municipals Fund ........................... f-1
EV Traditional Pennsylvania Municipals Fund ......................... g-1
EV Traditional Texas Municipals Fund ................................ h-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information. This Statement of Additional Information is sometimes
referred to as the "SAI".
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 MARCH 29, 1996, AS SUPPLEMENTED FROM
TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ
IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following information relates generally to 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 federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does not have original issue discount or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de 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
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The June, 1995 unemployment rate was 13.9%.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the federal government. Most federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Internal Revenue Code was amended and provided for two
alternative limitations to the Section 936 credit. The first option will limit
the credit against such income to 40% of the credit allowable under current law,
with a five year phase-in period starting at 60% of the allowable credit. The
second option is a wage and depreciation based credit. The reduction of the tax
benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that these modifications
will not lead to a weakened economy, a lower rating on Puerto Rico's debt or
lower prices for Puerto Rican bonds that may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. Puerto Ricans voted to retain Commonwealth
status, leaving intact the current relationship with the federal government.
There can be no assurance that the statehood issue will not be brought to a vote
in the future. A successful statehood vote in Puerto Rico would then require
ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas was hit by a hurricane and sustained extensive damage. The
longer term impact on the tourism industry is not yet known. There can be no
assurances that the market for USVI bonds will not be affected. In general,
hurricanes and civil unrest have and will continue to have an adverse affect on
the tourism industry.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI experienced a budget deficit in fiscal
years 1989 and 1990: in 1989 due to wage settlements with the unionized
government employees, and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam is
expected to benefit from the closure of the Subic Bay Naval Base and the Clark
Air Force Base in the Philippines. The Naval Air Station, one of several U.S.
military facilities on the island, has been slated for closure by the Defense
Base Closure and Realignment Committee; however, the administration plans to use
these facilities to expand the island's commercial airport. Guam is also heavily
reliant on tourists, particularly the Japanese. For 1994, the financial position
of Guam was weakened as it incurred an unaudited General Fund operating deficit.
The administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain muncipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell securities (and later purchase) 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. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-issued
basis it records the transaction and reflects the value of the security in
determining its net asset value. Securities purchased on a when-issued basis and
the securities held by the Portfolio are subject to changes in value based upon
the perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e. appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be greater fluctuations in the Portfolio's
net asset value than if it solely set aside cash to pay for when-issued
securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940, as amended, (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. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. Longer term fixed-rate bonds
may give the holder a right to request redemption at certain times (often
annually after the lapse of an intermediate term). These bonds are more
defensive than conventional long term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, because the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Since this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Commission, such loans are required to be secured
continuously by collateral in cash, cash equivalents or U.S. Government
securities held by the Portfolio's custodian and maintained on a current basis
at an amount at least equal to the market value of the securities loaned, which
will be marked to market daily. Cash equivalents include short-term municipal
obligations as well as taxable certificates of deposit, commercial paper and
other short-term money market instruments. The Portfolio would have the right to
call a loan and obtain the securities loaned at any time on up to five business
days' notice. During the existence of a loan, the Portfolio will continue to
receive the equivalent of the interest paid by the issuer on the securities
loaned and will also receive a fee, or all or a portion of the interest on
investment of the collateral, if any. However, the Portfolio may pay lending
fees to such borrowers. The Portfolio would not have the right to vote any
securities having voting rights during the existence of the loan, but would call
the loan in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks of
delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the Portfolio's total assets. The
Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS 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 Internal Revenue Code for maintaining qualification
of the Fund as a regulated investment company for federal income tax purposes
(see "Taxes").
Transactions using 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, receivables and short-term debt 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, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding futures contract or option is open, unless
they are replaced with other appropriate assets. As a result, the commitment of
a large portion of the Portfolio's assets to cover or segregated accounts 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, which as used in this SAI means
the lesser of (a) 67% of the outstanding voting securities of the Portfolio
present or represented by proxy at a meeting if the holders of more than 50% of
the outstanding voting securities of the Portfolio are present or represented at
the meeting or (b) more than 50% of the outstanding voting securities of the
Portfolio. The term "voting securities" as used in this paragraph has the same
meaning as in the 1940 Act. Whenever the Trust is requested to vote on a change
in the fundamental investment restrictions of the Portfolio (or the Portfolio's
80% investment policy with respect to State obligations described in the Fund's
current Prospectus), the Trust will hold a meeting of Fund shareholders and will
cast its vote as instructed by the shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short and unless not more than
25% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund will make such sales only for the purpose
of deferring realization of gain or loss for federal income tax purposes); (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; (d) purchase or retain in its portfolio
any securities issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the Trust or the Portfolio or is a
member, officer, director or trustee of any investment adviser of the Trust or
the Portfolio, if after the purchase of the securities of such issuer by the
Fund or the Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities or both (all taken at market value) of
such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); or (e) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), 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 (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
SAMUEL L. HAYES, III (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 (60), 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 (69), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (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 (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March
22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS, (64) Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary on March
27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Woodubury
was elected Assistant Secretary on June 19, 1995.
For any additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred fees
invested by the Portfolio in the shares of one or more funds in the Eaton Vance
Family of Funds, and the amount paid to the Trustees under the Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Plan will have a negligible effect on the
Portfolio's assets, liabilities, and net income per share, and will not obligate
the Portfolio to retain the services of any Trustee or obligate the Portfolio to
pay any particular level of compensation to the Trustee. Neither the Portfolio
nor the Fund 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.
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 and tax-free U.S.
government and corporate bonds. Lloyd George Management, an investment
management firm based in Hong Kong, has advised Eaton Vance's international
equity funds since 1992. Lloyd George's staff includes 11 highly qualified
investment professionals who manage $U.S. 1.3 billion. 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.
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 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The following persons manage one or more of the Eaton Vance
tax-free portfolios. For the identity of the Portfolio's portfolio manager, see
the Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance Management and the
portfolio manager of single-state tax-exempt funds in five states: Hawaii,
Louisiana, Massachusetts, 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.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part
II.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others. The Agreement also
provides that BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under that Agreement,
in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of February
29, 1996, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders,
are officers of the Trust and/or the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees paid under
the Investment Advisory Agreement.
EVC owns all of the stock of 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, Investors Bank & Trust Company. It is Eaton Vance's opinion that
the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between the
Fund or the Portfolio and such banks.
CUSTODIAN
IBT, 89 South Street, Boston, Massachusetts acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund and computes the
daily net asset value of interests in the Portfolio and the net asset value of
shares of the Fund. In such capacity it attends to details in connection with
the sale, exchange, substitution, transfer or other dealings with the
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges custody fees which are competitive within the
industry. A portion of the fee relates to custody, bookkeeping and valuation
services and is based upon a percentage of Fund and Portfolio net assets and a
portion of the fee relates to activity charges, primarily the number of
portfolio transactions. These fees are then reduced by a credit for cash
balances of the particular investment company at the custodian equal to 75% of
the 91-day U.S. Treasury Bill auction rate applied to the particular investment
company's average daily collected balances for the week. Landon T. Clay, a
Director of EVC and an officer, Trustee or Director of other 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 1940 Act. For
the custody fees that the Portfolio and the Fund paid to IBT, see "Fees and
Expenses" in the Fund's Part II.
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is anticipated
that $50,000 or more of Fund shares and shares of the other continuously offered
open-end funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund will be purchased within a 13-month period, a Statement
of Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the Transfer Agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. For sales
charges and other information on quantity purchases, see "How to Buy Fund
Shares" in the Fund's current Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Fund shares is calculated by taking the dollar
amount of the current purchase and adding it to the value (calculated at the
maximum current offering price) of the shares the shareholder owns in his or her
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate. For example, if the shareholder
owned shares valued at $30,000 in EV Traditional California Municipals Fund, and
purchased an additional $20,000 of Fund shares, the sales charge for the $20,000
purchase would be at the rate of 2.75% of the offering price (2.83% of the net
amount invested) which is the rate applicable to single transactions of $50,000.
For sales charges on quantity purchases, see "How to Buy Fund Shares" in the
Fund's current Prospectus. Shares purchased (i) by an individual, his or her
spouse and their children under the age of twenty-one, and (ii) by a trustee,
guardian or other fiduciary of a single trust estate or a single fiduciary
account, will be combined for the purpose of determining whether a purchase will
qualify for the Right of Accumulation and if qualifying, the applicable sales
charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her financial service firm ("Authorized Firm") must provide
the Principal Underwriter (in the case of a purchase made through an Authorized
Firm) or the Transfer Agent (in the case of an investment made by mail) with
sufficient information to permit verification that the purchase order qualifies
for the accumulation privilege. Confirmation of the order is subject to such
verification. The Right of Accumulation privilege may be amended or terminated
at any time as to purchases occurring thereafter.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Fund's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services Withdrawal
Plan" in the Fund's current Prospectus) based upon the value of the shares held.
The checks will be drawn from share redemptions and hence, are a return of
principal. Income dividends and capital gain distributions in connection with
withdrawal accounts will be credited at net asset value as of the record date
for each distribution. Continued withdrawals in excess of current income will
eventually use up principal, particularly in a period of declining market
prices.
To use this service, at least $5,000 in cash or shares at the public
offering price, (i.e., net asset value plus the applicable sales charge) will
have to be deposited with the Transfer Agent. The maintenance of a withdrawal
plan concurrently with purchases of additional Fund shares would be
disadvantageous because of the sales charge included in such purchases. A
shareholder may not have a withdrawal plan in effect at the same time he or she
has authorized Bank Automated Investing or is otherwise making regular purchases
of Fund shares. The shareholder, the Transfer Agent or the Principal Underwriter
will be able to terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transaction prices for most municipal obligations held by the Portfolio, and
such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by the Trustees of the Portfolio. The Fund and
the Portfolio will be closed for business and will not price their respective
shares or interests on the following business holidays: New Year's Day,
Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes the maximum sales charge is deducted from the initial $1,000
purchase order and that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. For 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 (which includes the maximum sales charge) per share on
the last day of the period and annualizing the resulting figure. Net investment
income per share is calculated from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods, reduced by
accrued Fund expenses for the period, with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
dividends during the period. Yield calculations assume a maximum sales charge
equal to 3.75% of the public offering price. Actual yield may be affected by
variations in sales charges on investments. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by 1 minus a stated
rate. For the yield and taxable- equivalent yield of the Fund, see "Performance
Information" in the Fund's Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or its effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current maximum offering price per share. The
Fund's effective distribution rate is computed by dividing the distribution rate
by the ratio (the days in a year divided by the accrual days of the monthly
period) used to annualize the most recent monthly distribution and reinvesting
the resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investors should note that the
Fund's yield is calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month. See "Distributions and Taxes" in the Fund's
current Prospectus. For the Fund's distribution rate and effective distribution
rate, see "Performance Information" in the Fund's Part II.
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
the 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, Inc., CDA/Wiesenberger or Morningstar, Inc.). 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.
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.
Information, charts and illustrations relating to inflation and the effects
of inflation on the dollar may be included in advertisements and other material
furnished to present and prospective shareholders. For example, after 10 years,
the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465 and
$12,100, if the annual rates of inflation during such period were 4%, 5%, 6% and
7%, respectively. (To calculate the purchasing power, the value at the end of
each year is reduced by the above inflation rates for 10 consecutive years.)
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 in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze."
TAXES
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 July
31, 1995 (see the Notes to the Financial Statements incorporated by reference in
this SAI). Because the Fund invests its assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for the Fund to satisfy them. The Portfolio will allocate
at least annually among its investors, including the Fund, the Portfolio's net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the Fund
will be deemed (i) to own its proportionate share of each of the assets of the
Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
federal income tax returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax exempt interest earned by
the Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
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. (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 that Rule were
applicable.) The following supplements the discussion of the Plan contained in
the Fund's Prospectus.
The Plan remains in effect through April 28, 1996, and from year to year,
thereafter, provided such continuance is approved by a vote of both a majority
of (i) those Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "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 Fund's initial
sole shareholder (Eaton Vance) and 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 firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Portfolio from
time to time, it is the opinion of the Trustees of the Trust and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II.
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.
The Trust is organized as a Massachusetts business trust. As permitted by
Massachusetts law, there will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees of the Trust holding office have been elected by shareholders.
In such an event the Trustees then in office will call a shareholders' meeting
for the election of Trustees. Except for the foregoing circumstances and unless
removed by action of the shareholders in accordance with the Trust's by-laws,
the Trustees shall continue to hold office and may appoint successor Trustees.
The Trust's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The by-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this SAI 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 Fund's most recent Annual Report accompanies this
SAI.
<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>
[LOGO]
EV TRADITIONAL
MUNICIPAL
FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 29, 1996
EV TRADITIONAL ARIZONA MUNICIPALS FUND
EV TRADITIONAL COLORADO MUNICIPALS FUND
EV TRADITIONAL CONNECTICUT MUNICIPALS FUND
EV TRADITIONAL MICHIGAN MUNICIPALS FUND
EV TRADITIONAL MINNESOTA MUNICIPALS FUND
EV TRADITIONAL NEW JERSEY MUNICIPALS FUND
EV TRADITIONAL PENNSYLVANIA MUNICIPALS FUND
EV TRADITIONAL TEXAS 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, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-C3/96SAI
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL ARIZONA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Arizona State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Arizona Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Arizona considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Arizona issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Arizona issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The ability of Arizona and its political subdivisions to respond to the
ever-increasing burdens placed upon them by the growth of the 1980's has been
limited, in part, by Constitutional and legislative restrictions on property
tax increases and limitations on annual expenditure increases. Subject to
certain exceptions, the maximum amount of property taxes levied by any Arizona
county, city, town or community college district for their operations and
maintenance expenditures cannot exceed the amount levied in a preceding year
by more than two percent. Certain taxes are specifically exempt from this
limit, including taxes levied for debt service payments. Annual property tax
levies for the payment of general obligation bonded indebtedness are unlimited
as to rate or amount. However, there are Constitutional limitations on the
aggregate amount of general obligation bonded indebtedness an Arizona
municipality may incur, and these limitations could impede a municipality's
ability to respond to the needs of a fast-growing population for additional
public facilities and services.
Arizona State government general fund revenue growth in fiscal year 1994
exceeded projections, increasing 10.7% overall. The 10.8% increase in sales
tax revenue and the 9.3% increase in income tax revenue reflects the increased
economic growth in the State. With revenue growth outpacing an 8.8% increase
in expenditures, the State general fund ended fiscal year 1994 with a total
fund balance of $420.2 million. Fiscal year 1995 is expected to close with a
general fund balance of $115 million, and a budget stabilization ("rainy day"
fund) balance of approximately $203 million, with the two combined equal to
7.3% of total general fund expenditures.
The 1995 legislature enacted a $200 million income tax reduction package
and has committed to enact a $200 million property tax reduction package in
1997. In 1992, Arizona voters passed a measure that requires a two-thirds vote
of the legislature to increase State revenue. Accordingly, it will be more
difficult to reverse the current and planned tax reductions, which may
adversely affect State fund balances and fiscal conditions.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $144,521,015. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$629,148 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $505,544 (equivalent to 0.41% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $268,894 (equivalent to 0.39%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and remains in effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the
period from the start of business, December 13, 1993, to the fiscal year ended
July 31, 1994, $18,453 and $16,438, respectively, of the Fund's operating
expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 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 fiscal year ended July
31, 1995, the Principal Underwriter paid to Authorized Firms sales commissions
of $21,876 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 $22,746. During such period, contingent deferred sales
charges ("CDSCs") aggregating approximately $600 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 July 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $421,000 (which amount was
equivalent to 17.1% of the Fund's net assets on such date). During the fiscal
year ended July 31, 1995, the Fund paid service fee payments under the
Distribution Plan aggregating $6,090, of which $5,854 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $87.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $4,972 and the
Portfolio paid IBT $65,302.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31,
1994, and for the period from the start of business, February 1, 1993, to the
fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended July 31, 1995, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and, for the year ended September 30, 1995, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund
complex\1/:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $0 $1,692(2) $135,000(4)
Samuel L. Hayes, III ..... 0 1,736(3) 150,000(5)
Norton H. Reamer ......... 0 1,752 135,000
John L. Thorndike ........ 0 1,841 140,000
Jack L. Treynor .......... 0 1,784 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $436 of deferred compensation.
(3) Includes $559 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.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 from July 25, 1991 through
July 31, 1995 and for the one year period ended July 31, 1995. The total
return for the period prior to the Fund's commencement of operations on
December 13, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. Total
return for this time period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the Fund's
sales charge effective February 1, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT AMOUNT OF INVESTMENT ---------------------- ----------------------
INVESTMENT PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 7/25/91 $962.50 $1,291.13 34.14% 7.58% 29.11% 6.56%
1 Year Ended
7/31/95** 7/31/94 $962.09 $1,024.04 6.44% 6.44% 2.45% 2.45%
</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 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 July 31, 1995, the yield of the Fund was
4.35%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.35% would be 6.65%,
assuming a combined federal and State tax rate of 34.59%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.45%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.55%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 December 29, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 29, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL and Southwest Securities, Dallas, TX were the record owners
of approximately 32.4% and 20.2% of the outstanding shares, which were held on
behalf of their customers who are the beneficial owners of such shares, and as
to which they had voting power under certain limited circumstances. In
addition, as of such date, Sherely F. Randall, Trustee, Sherely F. Randall Liv
Trust U/A dtd 8/9/94, Green Valley, AZ owned approximately 9.2% of the
outstanding shares of the Fund. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Arizona Tax Free Fund to EV
Classic Arizona Municipals Fund on December 1, 1995 and to EV Traditional
Arizona 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 Arizona State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND ARIZONA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN AND ARIZONA 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------- ------------------ 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 17.98% 4.88% 5.49% 6.10% 6.71% 7.31% 7.92% 8.53
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 31.74 5.86 6.59 7.33 8.06 8.79 9.52 10.26
$ 58,151 - $121,300 $ 96,901 - $147,700 34.59 6.12 6.88 7.64 8.41 9.17 9.94 10.70
$121,301 - $263,750 $147,701 - $263,750 39.58 6.62 7.45 8.28 9.10 9.93 10.76 11.59
Over $263,750 Over $263,750 42.98 7.02 7.89 8.77 9.65 10.52 11.40 12.28
</TABLE>
*Net amount subject to federal and Arizona personal income tax after deductions
and exemptions.
+ The combined federal and Arizona tax brackets are calculated using the highest
Arizona tax rate within each bracket. Taxpayers with taxable income within such
brackets may have lower combined tax brackets and taxable equivalent yields
than indicated above. The combined tax brackets assume that Arizona taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets 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 Arizona 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 a substantial portion
of the interest income distributed to Fund Shareholders will be exempt from
the regular federal income tax and Arizona personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Arizona personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this 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 COLORADO MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Colorado State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Colorado Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Colorado considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Colorado issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Colorado issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Large public works projects, a pickup in the housing sector and growth in
the trade and services industries led to moderate employment gains for the State
during the early 1990's. Certain areas of manufacturing, however, have been
adversely impacted by the prolonged U.S. downturn and by relatively heavy
reliance on defense contracts and military payroll.
The major revenue sources of the State are the individual income tax and the
general sales and use tax. Because of limitations contained in the State
constitution, the State of Colorado issues no general obligation bonds. Several
agencies and instrumentalities of State government, however, are authorized by
statute to issue bonds secured by revenues from specific projects and activities
or to enter into lease-purchase financings which are subject to annual
appropriation. Additionally, the State is authorized to issue short-term revenue
anticipation notes. To the extent the Portfolio holds debt of local units of
government whose revenues may rely in part on distributions from the State, the
fiscal health of the State will have an indirect affect on the Portfolio. The
State is required to have a balanced budget each fiscal year. Therefore, in the
event of a funding gap, the State must cut expenditures and/or raise revenues.
The latter is difficult, especially since the passage of the TABOR Amendment
(see below). Strong growth in income tax and sales tax collections recently
contributed to larger increases in the unreserved fund balance than had been
budgeted. In fiscal year 1993-94, the State had revenue collections which
exceeded expenditures by $38 million. In fiscal year 1994-95, revenues exceeded
expenditures by $94 million. The State will make a $74 million contribution to
an emergency reserve, leaving the general fund reserve at $276 million, or
roughly 7.6% of total annual appropriations. Such emergency reserve transfers
are not foreseen to be required in the next several years. Revenues for the
1995-96 fiscal year are budgeted to increase 4% while expenditures will increase
6%.
There are approximately 1,800 units of local government in Colorado,
including counties, statutory cities and towns, home-rule cities and counties,
school districts and a variety of water, sewer and other special districts, all
with various constitutional and statutory authority to levy taxes and incur
indebtedness. The major sources of revenue for payment of indebtedness are the
ad valorem property tax, which presently is imposed and collected solely at the
local level, although the State is also authorized to levy the tax, sales and
use taxes, and revenue from special projects. Residential real property is
presently assessed at 10.36% of its actual value. All other property is assessed
at 29% of its actual value except producing mines and oil and gas properties.
Oil and gas properties are assessed at 87.5%.
A 1992 amendment to the State Constitution (the "TABOR Amendment") restricts
growth of State and local government spending to the rate of inflation plus
growth (as measured by population, school enrollment, or construction depending
on the government entity); and requires voter approval of all new taxes or tax
increases and the issuance of most types of debt. Though the TABOR Amendment is
not expected to have an immediate effect on the credit quality of state and
local governments, it will likely reduce the financial flexibility of all levels
of government in Colorado over time. In particular, local governments dependent
on taxes on residential property are being squeezed between the TABOR Amendment
requirements of voter approval for increased mill levies and an earlier State
Constitutional amendment which has had the effect of lowering the assessment
rate on residential property from 21% to 10.36% over the past 8 years. Younger
or rapidly growing municipalities with large infrastructure requirements may
have particular difficulty finding the revenues needed to finance their growth.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $46,077,166. For the
fiscal year ended July 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $128,496 (equivalent to 0.28% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $69,064.
For the ten months ended July 31, 1994, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $67,224 (equivalent to 0.23% (annualized)
of the Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its advisory
fee and BMR was allocated a portion of the expenses related to the operation of
the Portfolio in the amount of $31,504. For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$15,122 (equivalent to 0.16% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a portion
of expenses related to the operation of the Portfolio in the amount of $12,114.
The Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and remains in effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the period
from the start of business, December 10, 1993, to the fiscal year ended July 31,
1994, $17,169 and $14,596, respectively, of the Fund's operating expenses were
allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 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 fiscal year ended July 31, 1995, the Principal
Underwriter paid to Authorized Firms sales commissions of $16,399 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
$17,028. During such period, contingent deferred sales charges ("CDSCs")
aggregating approximately $200 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 July 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Distribution Plan amounted to approximately
$286,000 (which amount was equivalent to 14.5% of the Fund's net assets on such
date). During the fiscal year ended July 31, 1995, the Fund paid service fee
payments under the Distribution Plan aggregating $4,594, of which $4,346 was
paid to Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $125 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $4,950 and the
Portfolio paid IBT $16,604.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994,
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex\1/:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $0 $333(2) $135,000(4)
Samuel L. Hayes, III ..... 0 322(3) 150,000(5)
Norton H. Reamer ......... 0 314 135,000
John L. Thorndike ........ 0 318 140,000
Jack L. Treynor .......... 0 343 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $83 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, David C. Reilly (38) is a Vice President of
the Portfolio. Mr. Reilly has served as a Vice President of the Portfolio since
December 1, 1995. Mr. Reilly has been a Vice President of BMR since 1992 and
Eaton Vance since 1991 and an employee of Eaton Vance since 1991. Prior to
joining Eaton Vance, he was a Vice President and a municipal bond analyst at
Scudder, Stevens & Clark (1984-1991). Mr. Reilly 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
July 31, 1995 and for the one year period ended July 31, 1995. The total return
for the period prior to the Fund's commencement of operations on December 10,
1993 reflects the Portfolio's total return (or that of its predecessor) adjusted
to reflect any applicable Fund sales charge. Total return for this time period
has not been adjusted to reflect the Fund's service fees and certain other
expenses. The performance reflects the Fund's sales charge effective February 1,
1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT AMOUNT OF INVESTMENT ---------------------- ----------------------
INVESTMENT PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 8/25/92 $962.49 $1,130.44 17.45% 5.64% 13.05% 4.27%
1 Year Ended
7/31/95** 7/31/94 $962.27 $1,018.93 5.89% 5.89% 1.92% 1.92%
</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.
- ----------
* 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 July 31, 1995, 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 7.09%, assuming a
combined federal and State tax rate of 34.45%. If a portion of the Portfolio's
and the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.62%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.72%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
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 December 29, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 29, 1995, Donaldson Lufkin Jenrette Securities Corporation
Inc., Jersey City, NJ and Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL were the record owners of approximately 8.9% and 11.3% of the
outstanding shares, which were held on behalf of their customers who are the
beneficial owners of such shares, and as to which they had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Colorado Tax Free Fund to EV
Classic Colorado Municipals Fund on December 1, 1995 and to EV Traditional
Colorado 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
Colorado State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND COLORADO STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------- ------------------ CO STATE ----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 24,001 - $ 58,150 $ 39,001 - $ 94,250 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 58,151 - $121,300 $ 94,251 - $143,600 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$121,301 - $263,750 $143,601 - $256,500 39.20 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $263,750 Over $256,500 42.62 6.97 7.84 8.71 9.59 10.46 11.33 12.20
</TABLE>
*Net amount subject to federal and Colorado personal income tax after deductions
and exemptions.
+The Colorado income tax rate is 5%. The combined tax rates assume that
Colorado taxes are itemized deductions for federal income tax purposes.
Investors who do not itemize deductions on their federal income tax return will
have a higher combined bracket and higher taxable equivalent yield than those
indicated above. The applicable federal tax rates within the brackets 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 Colorado State income taxes) for
taxpayers with adjusted gross income in excess $114,700. The tax brackets also
do not show the effects of phaseout of personal exemptions for single filers
with adjusted gross income in excess of $114,700 and joint filers with adjusted
gross income in excess of $172,050. The effective tax brackets and equivalent
taxable yields of such taxpayers will be higher than those indicated above.
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 Colorado personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Colorado personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this 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 CONNECTICUT
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Connecticut State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Connecticut Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Connecticut considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Connecticut issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Connecticut issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Although the manufacturing sector has traditionally been of prime economic
importance to Connecticut, the non-manufacturing sector of employment (primarily
aircraft engines, helicopters and submarines) now dominate the State's economy.
Approximately 82% of the State's non-agricultural employment is in the
non-manufacturing sector, with 30% of the total in the service sector, 22% in
the wholesale and retail trade sector, and 14% in the government sector.
Defense-related business plays an important role in the Connecticut economy, and
defense awards to Connecticut have traditionally been among the highest in the
nation on a per capita basis. However, in recent years the federal government
has reduced defense-related spending which has had an adverse impact on the
Connecticut economy.
As of June 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 5.4%, compared to 5.6% for the nation. Between June 1994 and
June 1995, the State lost 1,700 non-farm jobs, with gains in the services, and
construction sectors being offset by losses in the manufacturing (durable
goods), finance, insurance and real estate sectors of the economy. The State's
economy is beginning a slow recovery, constrained by military spending cuts and
cost containment pressures in the insurance and biomedical industries. The full
economic impact of continued corporate downsizing in the defense and insurance
industries may not be fully realized.
The State derives over 70% of its revenues from taxes imposed by the State.
The two major taxes have been the sales and use tax and the corporation business
tax, each of which is sensitive to changes in the level of economic activity in
the State, but the Connecticut personal income tax on individuals, trusts, and
estates enacted in 1991 is expected to supersede them in importance. In order to
promote economic stability and provide a positive business climate, several tax
changes were adopted during the 1993 legislative session. Among the most
significant changes were the changes to the Corporation Business Tax -- a 4 year
gradual rate reduction to 11.25% beginning January 1, 1995; 11% beginning
January 1, 1996; 10.5% beginning January 1, 1997 and 10% beginning January 1,
1998.
During fiscal 1991-92, the State issued $965.7 million of Economic Recovery
Notes, of which $455.6 million remained outstanding as of March 1995. The State
ended the 1992-93 fiscal year with a $113.5 million General Fund operating
surplus and a $19.7 million General Fund surplus for the 1993-94 fiscal year.
The estimated surplus at June 1995 for the General Fund is $74.5 million, and
the estimated surplus for the Transportation Fund is $57.9 million.
The State, its officers and employees are defendants in numerous lawsuits.
According to the State Attorney General's Office, an adverse decision in any of
the cases summarized herein could materially affect the State's financial
position: (i) an action to enforce the spending cap provision of the State's
constitution by seeking to require that the General Assembly define certain
terms used therein and to enjoin certain increases in "general budget
expenditures" until this is done; (ii) litigation on behalf of black and
hispanic school children in the City of Hartford seeking "integrated education"
within the greater Hartford metropolitan area; (iii) litigation involving claims
by Indian tribes to less than 1/10 of 1% of the State's land area; (iv)
litigation challenging the State's method of financing elementary and secondary
public schools on the grounds that it denies equal access to education; (v) an
action in which two retarded persons seek placement outside a State hospital,
new programs, and damages on behalf of themselves and all mentally retarded
patients at the hospital; (vi) litigation involving claims for refunds of taxes
by several cable television companies; (vii) an action on behalf of all persons
with retardation or traumatic brain injury, claiming that their constitutional
rights are violated by placement in State hospitals alleged not to provide
adequate treatment and training, and seeking placement in community residential
settings with appropriate support services; (viii) an action by the Connecticut
Hospital Association and 33 hospitals seeking to require the State to reimburse
hospitals for in-patient medical services on a more favorable basis; (ix) a
class action by the Connecticut Criminal Defense Lawyers Association claiming a
campaign of illegal surveillance activity and seeking damages and injunctive
relief; (x) two actions for monetary damages brought by a former patient at a
State mental hospital stemming from an attempted suicide that left her
brain-damaged; (xi) an action challenging the validity of the State's imposition
of surcharges on hospital charges to finance certain uncompensated care costs
incurred by hospitals; and (xii) an action challenging the validity of the
State's imposition of gross earnings taxes on hospital revenues to finance
certain uncompensated care costs.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $195,275,789. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$835,605 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $635,227 (equivalent to 0.42% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $331,388 (equivalent to 0.40%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the period
from the start of business, April 19, 1994, to the fiscal year ended July 31,
1994, $19,622 and $1,413, respectively, of the Fund's operating expenses were
allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be continued
as described under "Service Plan" in Part I. The Trustees have initially
implemented the Plan by authorizing the Fund to make quarterly service fee
payments to the Principal Underwriter and Authorized Firms in amounts not
expected to exceed .20% of the Fund's average daily net assets for any fiscal
year based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. During the fiscal year ended July 31,
1995, the Fund made service fee payments under the Plan aggregating $36, which
amount was paid to Authorized Firms.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund for the fiscal year
ended July 31, 1995 was $28,595, of which $28 was received by the Principal
Underwriter and $28,567 was received by Authorized Firms.
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $7.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transactiion).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $1,419 and the
Portfolio paid IBT $48,135.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994,
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex\1/:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $0 $2,096(2) $135,000(4)
Samuel L. Hayes, III ..... 0 2,123(3) 150,000(5)
Norton H. Reamer ......... 0 2,133 135,000
John L. Thorndike ........ 0 2,227 140,000
Jack L. Treynor .......... 0 2,196 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $525 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (34) is a Vice President of
the Portfolio. Ms. Anderes has served as a Vice President of the Portfolio since
June 19, 1995. Ms. Anderes has been a Vice President of BMR and Eaton Vance
since 1994 and is an officer of various investment companies managed by Eaton
Vance or BMR. Prior to joining Eaton Vance, Ms. Anderes was Vice President and
portfolio manager, Lazard Freres Asset Management (1992-1994) and Vice President
and Manager -- Municipal Research, Roosevelt & Cross (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from May 1, 1992 through July
31, 1995 and for the one year period ended July 31, 1995. The total return for
the period prior to the Fund's commencement of operations on April 19, 1994
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Total return for this time period has
not been adjusted to reflect the Fund's service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT AMOUNT OF INVESTMENT ---------------------- ----------------------
INVESTMENT PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund+ 5/1/92 $962.76 $1,160.72 20.56% 5.92% 16.07% 4.69%
1 Year Ended
7/31/95+ 7/31/94 $962.82 $1,019.56 5.89% 5.89% 1.96% 1.96%
</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 current maximum sales charge of 3.75%.
+If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended July 31, 1995, the yield of the Fund was
5.21%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.21% would be 7.91%, assuming a
combined federal and State tax rate of 34.11%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 31, 1995) was 5.49%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.63%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 December 29, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 29, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL and Donaldson Lufkin Jenrette Securities Corporation Inc.,
Jersey City, NJ were the record owners of approximately 7.9% and 5.3% of the
outstanding shares, which were held on behalf of their customers who are the
beneficial owners of such shares, and as to which they had voting power under
certain limited circumstances. In addition, as of such date, the following
shareholders owned beneficially and of record the percentages of outstanding
shares of the Fund indicated after their names: George J. Sherman 1989 Trust,
Wm. T. Sherman Trs dtd 12/19/89, West Hanford, CT (16.2%); Mary E. Corona,
Wethersfield, CT (6.2%); George H. Marcinek, Killingworth, CT (6.0%); Martha W.
Duck, Darien, CT (6.0%) and Carol Gardner Wallace, Fairfield, CT (5.2%). To the
knowledge of the Trust, no other person owned of record of beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Traditional Connecticut Tax Free Fund to
EV Traditional Connecticut Municipals Fund on December 1, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below 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
Connecticut State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND CONNECTICUT STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------- ------------------ CT STATE ----------------------------------------------------------
(TAXABLE INCOME*) 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 18.25% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 58,151 - $121,300 $ 96,901 - $147,700 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$121,301 - $263,750 $147,701 - $263,750 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $263,750 Over $263,750 42.32 6.93 7.80 8.67 9.54 10.40 11.27 12.14
</TABLE>
*Net amount subject to federal and Connecticut personal income tax after
deductions and exemptions.
+The combined federal and Connecticut tax brackets are calculated using the
highest Connecticut tax rate within each bracket, reduced by available tax
credits. Taxpayers with taxable income within these brackets may have a lower
combined tax bracket and taxable equivalent yield than indicated above. Tax
credits reduce the effective Connecticut tax rate for single filers with
taxable income up to $52,500 and joint filers up to $100,500. The combined tax
brackets assume that Connecticut taxes are itemized deductions for federal
income tax purposes. Investors who do not itemize deductions on their federal
income tax return will have a higher combined bracket and higher taxable
equivalent yield than those indicated above. The applicable federal tax rates
within the brackets 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 Connecticut 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 Connecticut personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Connecticut personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this 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 MICHIGAN MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Michigan State and City income and single
business taxes in the form of an investment exempt from Michigan intangibles
tax. The Fund currently seeks to achieve its investment objective by investing
its assets in the Michigan Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Michigan considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Michigan issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Michigan issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The State's economy is overly dependent on the manufacturing sector, more
specifically the auto industry. Manufacturing accounts for 23% of total
employment as compared to the national average of 17%. The dependency on
manufacturing makes the State economy overly susceptible to economic downturns.
For the first time since 1966, the unemployment rate was below the national
average. An improving economy and successful cost containment have enabled the
State to improve its financial position. For 1994, the Budget Stabilization Fund
was $779 million and is projected to reach $1.1 billion for 1995. The Governor
has proposed reducing individual and business income taxes. For 1996, revenues
are estimated to grow 4.7% while expenditures will grow by a similar rate.
In March, 1994, Michigan voters approved a change in the tax system. The
most significant provisions were an increase in the sales tax rate from 4% to
6%, a reduction in the income tax rate from 4.6% to 4.4% and the creation of a
statewide property tax. These changes are expected to provide sufficient
revenues to offset the elimination of property taxes for school district
operating purposes. There can be no assurance that school districts will receive
sufficient revenues to be able to service any limited tax bonds they may have
outstanding and which may be held by the Portfolio.
Under the State Constitution, the Legislature is prohibited from raising
taxes if doing so would cause total State revenues (except Federal aid) to
exceed 10% of State personal income. The only exceptions to this revenue limit
are a majority approval of a referendum question or a specific emergency
declared by a two-thirds vote of the Legislature. However, this limit does not
apply to taxes imposed for the payment of principal and interest on bonds of the
State, if the bonds are approved by voters and authorized by a vote of
two-thirds of the members of each House of the Legislature. Local units of
government and local authorities are authorized to issue bonds and other
evidences of indebtedness in a variety of situations without the approval of
electors, but the ability of the obligor to levy taxes for the payment of such
obligations is subject to the foregoing limitations unless the obligations were
authorized before December 23, 1978 or approved by the electors. The
Constitution prohibits the State from reducing the proportion of total State
spending paid to all local units of government, taken as a group, below that
proportion in effect in the 1978-79 fiscal year. The State may not mandate new
or increased levels of services to be provided by local units without making
appropriations to cover any increased costs.
Under the State Constitution, the total amount of general ad valorem taxes
imposed on taxable property in any year cannot exceed certain millage
limitations specified by the Constitution, statute or charter. The Constitution
prohibits local units of government from levying any tax not authorized by law
or charter, or from increasing the rate of an existing tax above the rate
authorized by law or charter. The Constitution also contains millage reduction
provisions. Under such provisions, should the value of taxable property
(exclusive of new construction and improvements) increase at a percentage
greater than the percentage increase in the Consumer Price Index, the maximum
authorized tax rate would be reduced by a factor which would result in the same
maximum potential tax revenues to the local taxing unit as if the valuation of
taxable property (less new construction and improvements) had grown only at the
Consumer Price Index rate instead of at the higher actual growth rate. Thus, if
taxable property values rise faster than consumer prices, the maximum authorized
tax rate would be increased at the Consumer Price Index rate. Conversely, if
taxable property values rise slower than consumer prices, tax rates may be
raised accordingly, but never higher than the rate authorized on December 23,
1978, without elector approval.
The ability of the State to pay the principal and interest on its general
obligation bonds may be affected by the limitations described above. Similarly,
the ability of local units to levy taxes to pay the principal of and interest on
their general obligations is subject to the constitutional, statutory and
charter limits described below.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $191,262,981. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$856,258 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $721,041 (equivalent to 0.43% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $443,391 (equivalent to 0.42%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1997. The Agreement 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 July 31, 1995, and for the
period from the start of business, December 7, 1993, to the fiscal year ended
July 31, 1994, $12,579 and $13,862, respectively, of the Fund's operating
expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 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 fiscal year ended July 31, 1995, the Principal
Underwriter paid to Authorized Firms sales commissions of $40,804 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
$41,523. During such period, contingent deferred sales charges ("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 July 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Distribution Plan amounted to approximately
$527,000 (which amount was equivalent to 11.8% of the Fund's net assets on such
date). During the fiscal year ended July 31, 1995, the Fund paid service fee
payments under the Distribution Plan aggregating $11,008, of which $10,877 was
paid to Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $177.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $3,955 and the
Portfolio paid IBT $1,944.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994,
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight ........... $33 $2,198(2) $135,000(4)
Samuel L. Hayes, III ....... 32 2,219(3) 150,000(5)
Norton H. Reamer ........... 31 2,229 135,000
John L. Thorndike .......... 32 2,325 140,000
Jack L. Treynor ............ 34 2,300 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $525 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (36) is a Vice President
of the Portfolio. Mr. Browse has served as a Vice President of the Portfolio
since June 19, 1995. Mr. Browse has been a Vice President of BMR and Eaton
Vance since 1993, and 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 April 19, 1991 through July
31, 1995 and for the one-year period ended July 31, 1995. The total return for
the period prior to the Fund's commencement of operations on December 7, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Total return for this time period has
not been adjusted to reflect the Fund's service fees and certain other expenses.
The performance reflects the Fund's sales charge effective February 1, 1996.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ----------------------------
PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------------- ------------- -------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/19/91 $962.54 $1,257.82 30.68% 6.44% 25.78% 5.50%
1 Year Ended
7/31/95** 7/31/94 $962.42 $1,015.52 5.52% 5.52% 1.56% 1.56%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
* 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 July 31, 1995, the yield of the Fund was
3.97%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.97% would be 6.26%, assuming a
combined federal and State tax rate of 36.54%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.40%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.49%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 December 29, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 29, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 76.4% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Michigan Tax Free Fund to EV
Classic Michigan Municipals Fund on December 1, 1995 and to EV Traditional
Michigan 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,
Michigan State income tax, Michigan State intangibles tax and Michigan City
income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND MICHIGAN STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- MI STATE ---------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------- ---------------- ---------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 21.08% 5.07% 5.70% 6.34% 6.97% 7.60% 8.24% 8.87%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.15 5.98 6.73 7.48 8.23 8.98 9.72 10.47
$ 58,151 - $121,300 $ 96,901 - $147,700 35.93 6.24 7.02 7.80 8.58 9.37 10.15 10.93
$121,301 - $263,750 $147,701 - $263,750 40.58 6.73 7.57 8.41 9.26 10.10 10.94 11.78
Over $263,750 Over $263,750 43.92 7.13 8.02 8.92 9.81 10.70 11.59 12.48
<FN>
*Net amount subject to federal and Michigan personal income tax after deductions and exemptions.
+The combined tax brackets include a Michigan tax rate of 4.4%, Michigan City income tax rate of 1% (which may vary by city),
and a Michigan intangibles tax rate of 1.75%, and assume that Michigan State and local 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 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 Michigan 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 Michigan personal income
taxes, other income received by the Portfolio and allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for Michigan personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August 7, 1986, while exempt from the regular
federal income tax, is treated as a tax preference item which could subject the recipient to the federal alternative minimum
tax. The illustrations assume that the federal alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this 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.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MINNESOTA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Minnesota State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Minnesota Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Minnesota considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Minnesota issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Minnesota issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The State's economic downturn has been less severe than that of the nation,
as evidenced by the State's employment growth in the early 1990s. The State of
Minnesota has no obligation to pay any bonds of its political or governmental
subdivisions, municipalities, governmental agencies, or instrumentalities. The
creditworthiness of local general obligation bonds is dependent upon the
financial condition of the local government issuer, and the creditworthiness of
revenue bonds is dependent upon the availability of particular designated
revenue sources or the financial conditions of the underlying obligors. Although
most of the bonds owned by the Portfolio are expected to be obligations other
than general obligations of the State of Minnesota itself, there can be no
assurance that the same factors that adversely affect the economy of the State
generally will not also affect adversely the market value or marketability of
such other obligations, or the ability of the obligors to pay the principal of
or interest on such obligations.
At the local level, the property tax base has recovered after its growth was
slowed in many communities in the early 1990s by an overcapacity in certain
segments of the commercial real estate market. Local finances are also affected
by the amount of state aid that is made available. Further, various of the
issuers within the State of Minnesota, as well as the State of Minnesota itself,
whose securities may be purchased by the Portfolio, may now or in the future be
subject to lawsuits involving material amounts. It is impossible to predict the
outcome of these lawsuits. Any losses with respect to these lawsuits may have an
adverse impact on the ability of these issuers to meet their obligations.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $82,967,696. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$310,489 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $228,154 (equivalent to 0.36% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $107,030 (equivalent to 0.30%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1997. The Agreement 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 July 31, 1995, and for the
period from the start of business, December 9, 1993, to the fiscal year ended
July 31, 1994, $24,179 and $22,241, respectively, of the Fund's operating
expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 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 fiscal year ended July 31, 1995, the Principal
Underwriter paid to Authorized Firms sales commissions of $35,560 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
$36,299. During such period, there were no contingent deferred sales charges
imposed on early redeeming shareholders. As at July 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $419,000 (which amount was
equivalent to 11.4% of the Fund's net assets on such date). During the fiscal
year ended July 31, 1995, the Fund accrued service fee payments under the
Distribution Plan aggregating $9,699, of which $9,447 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $105.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $3,348 and the
Portfolio paid IBT $20,399.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994,
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight ........... $25 $1,164(2) $135,000(4)
Samuel L. Hayes, III ....... 24 1,222(3) 150,000(5)
Norton H. Reamer ........... 23 1,254 135,000
John L. Thorndike .......... 24 1,336 140,000
Jack L. Treynor ............ 26 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $294 of deferred compensation.
(3) Includes $393 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, David C. Reilly (38) is a Vice President of
the Portfolio. Mr. Reilly has served as a Vice President of the Portfolio since
December 1, 1995. Mr. Reilly has been a Vice President of BMR since 1992 and
Eaton Vance since 1991 and an employee of Eaton Vance since 1991. Prior to
joining Eaton Vance, he was a Vice President and a municipal bond analyst at
Scudder, Stevens & Clark (1984-1991). Mr. Reilly 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 July 29, 1991 through July
31, 1995 and for the one-year period ended July 31, 1995. The total return for
the period prior to the Fund's commencement of operations on December 9, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Total return for this time period has
not been adjusted to reflect the Fund's service fees and certain other expenses.
The performance reflects the Fund's sales charge effective February 1, 1996.
<TABLE>
c VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ----------------------------
PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- ------------- ------------ ---------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 7/29/91 $962.55 $1,214.72 26.20% 5.98% 21.47% 4.97%
1 Year Ended
7/31/95** 7/31/94 $962.01 $1,004.78 4.45% 4.45% 0.53% 0.53%
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.
<FN>
- ----------
* 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 July 31, 1995, the yield of the Fund was
4.43%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.43% would be 7.02%, assuming a
combined federal and State tax rate of 36.87%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.58%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.67%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 December 29, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 29, 1995, the following shareholders owned of record the
percentages of outstanding shares indicated after their names: PaineWebber FBO
B.F. Nelson Inc., Minneapolis, MN (28.6%); PaineWebber FBO Larry Ross,
Bloomington, MN (14.1%); and PaineWebber FBO James Yackel, Gertrude Boyum & Jean
Pedersen co-Trustees U/A dtd. 12/31/76, Hammond, IN (6.7%). 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 Minnesota Tax Free Fund to EV
Classic Minnesota Municipals Fund on December 1, 1995 and to EV Traditional
Minnesota 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
regular Minnesota State personal income tax laws and tax rates for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND MINNESOTA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- MN STATE ----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ---------------- ----------------------------------------------------------------
<C> <C> <C> <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 34.12 6.07 6.83 7.59 8.35 9.11 9.87 10.63
$ 58,151 - $121,300 $ 96,901 - $147,700 36.87 6.34 7.13 7.92 8.71 9.50 10.30 11.09
$121,301 - $263,750 $147,701 - $263,750 41.44 6.83 7.68 8.54 9.39 10.25 11.10 11.95
Over $263,750 Over $263,750 44.73 7.24 8.14 9.05 9.95 10.86 11.76 12.67
<FN>
*Net amount subject to federal and Minnesota personal income tax after deductions and exemptions.
+The first two combined tax brackets are calculated using the highest Minnesota tax rate within each bracket. Taxpayers with
taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields than indicated above.
The combined tax brackets assume that Minnesota taxes are itemized deductions for federal income tax purposes. Investors who
do not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable
equivalent yield than those indicated above. The applicable federal tax rates within the brackets 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 Minnesota 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 Minnesota personal
income taxes, other income received by the Portfolio and allocated to the Fund may be taxable. The table does not take into
account state or local taxes, if any, payable on Fund distributions except for regular Minnesota personal income taxes. It
should also be noted that the interest earned on certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, and regular Minnesota personal income tax, is treated as a tax preference item which
could subject the recipient to the federal and Minnesota alternative minimum taxes. The illustrations assume that the federal
and Minnesota alternative minimum taxes are not applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this 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 NEW JERSEY
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and New Jersey State personal
income taxes. The Fund currently seeks to meet its investment objective by
investing its assets in the New Jersey Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New Jersey considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in New Jersey issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
Jersey issuers. Neither the Trust nor the Portfolio has independently verified
this information.
New Jersey has a well diversified economy and high wealth levels. Per capita
income ranks as one of the highest in the nation. The State's economy benefits
from its proximity to New York and other major eastern seaboard cities. New
Jersey's economy, like most states, suffered during the recent recession with
unemployment increasing and surpassing the national average. New Jersey's
adjusted unemployment rate for May 1995 was 6.5% compared to 5.7% nationally.
As of the date of this Statement of Additional Information, New Jersey's
general obligation debt was rated Aa1, AA+ and AA+, by Moody's, S&P and Fitch,
respectively. As a result of New Jersey's fiscal weakness, evidenced by
declining fund balances, S&P placed the State's general obligation debt and
related agency and lease obligations on CreditWatch with negative implications
in June 1991. In July, 1991 S&P downgraded the State's general obligation debt
from AAA to AA+. As part of this action, numerous agency and lease obligation
debts were also downgraded accordingly. These downgrades did not affect state
university and college ratings. In August 1992, Moody's downgraded New Jersey to
Aa1 from Aaa due to the use of one-time revenue items, revenue shortfalls and
ongoing operating deficits. S&P affirmed their AA+ rating for the State, but
retained the negative outlook. On December 16, 1992, Fitch lowered their rating
on the State to AA+ from AAA. The rating action was due to the State's decision,
with the most recent bond issuance, to defer debt service in the immediate
future in order to provide for unmet capital needs, while increasing debt
service requirements in future years wnen additional resources may or may not be
available.
As part of the 1992-1993 budget, the Legislature cut approximately $1
billion in spending from the Governor's budget, including cutbacks in both the
State's homestead rebate and general assistance programs. To cover the shortfall
resulting from the cutbacks, the State employee pension fund was revalued,
allowing the State to reduce its contribution, and a surplus in the school aid
funds was applied to the General Fund. The State ended fiscal 1993 with an $855
million surplus, approximately half of which was used in the 1994 budget. 1994
had an appropriation for all funds of $15.7 billion, up 4.8% from fiscal 1993
revised appropriations of $14.7 billion. Both years benefited from $412 million
in nonrecurring revenues from retroactive Federal Medicaid payments. After the
Legislature reduced the Governor's fiscal 1994 requests by $182 million, about
half the $855 million fiscal 1993 total surplus was used for fiscal 1994, with a
June 30, 1994 forecast of $416 million -- $110 million allocated to the General
Fund and over $305 million to rainy day and taxpayer relief funds.
In 1994, New Jersey adopted a 5% personal income tax cut retroactive to
January 1, 1994. In 1995, New Jersey adopted a 10% personal income tax cut
retroactive to January 1, 1995. On June 26, 1995, the New Jersey State
Legislature passed an additional 15% reduction to take effect January 1, 1996.
State officials estimate the revenue loss resulting from these tax cuts at over
$1 billion for fiscal 1996. To accommodate the tax cut, the fiscal 1996 budget
would rely on non-recurring revenues and the use of prior years' surplus.
Furthermore, a major focus of the spending reductions has been employer
contributions to retiree health care and pension systems which were cut by over
$863 million in fiscal 1995. There can be no assurance that the tax cuts will
not have an adverse impact on the State's finances and the demand for municipal
bonds in the State.
General obligation bonds of New Jersey are the primary method for New Jersey
financing of capital projects. These bonds are backed by the full faith and
credit of New Jersey. New Jersey tax revenues and certain other fees are pledged
to meet the principal and interest payments required to fully pay the debt. No
general obligation debt can be issued by New Jersey without prior voter
approval, except that, pursuant to a constitutional amendment, no voter approval
is required for any law authorizing the creation of a debt for the purpose of
refinancing all or a portion of the outstanding debt of New Jersey, so long as
such law requires that the refinancing provided debt service savings. The New
Jersey Constitution also provides that no voter approval is required for debt
issued for purposes of war, to repel invasion, to suppress insurrection or to
meet an emergency caused by disaster or act of God. Capital construction can
also be funded by appropriation of current revenues on a pay- as-you-go basis.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning.
Other State-related obligations include those created pursuant to the New
Jersey Building Authority Act, which has the power to construct facilities for
leasing to the State. The rental for such buildings is equal to the debt service
relating thereto plus payments in lieu of real estate taxes. Legislation
provides for future appropriations for State aid to local school districts equal
to debt service on a maximum principal amount of $280,000,000 of bonds issued by
such local school districts for construction and renovation of school facilities
and for State aid to counties equal to debt service on up to $80,000,000 of
bonds issued by counties for construction of county college facilities.
The authorizing legislation for various State entities provides for specific
budgetary procedures with respect to certain obligations issued by such
entities. Bonds issued pursuant to authorizing legislation of this type are
sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible State entities. Currently, there are two such entities available for
State appropriations to meet moral obligations. The New Jersey Housing and
Mortgage Finance Agency has not had a deficiency in a debt service reserve which
required New Jersey to appropriate funds. It is anticipated that the agency's
revenue will continue to be sufficient to cover debt service on its bonds. The
State provides the South Jersey Port Corporation with funds to cover all debt
service and property tax requirements, when earned revenues are anticipated to
be insufficient to cover these obligations. In the past, anticipated revenues
have, in some cases, been insufficient to cover debt service and/or insufficient
to cover all property tax requirements. These are numerous other State-created
entities with outstanding debt. This debt is supported by revenues derived from
or assets of the various projects financed by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties and
municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may be
issued and requiring their repayment within three months of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance of
bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the Local
Finance Board. State law also authorizes State officials to supervise fiscal
administration in any municipality facing financial difficulties.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $411,038,422. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$1,944,340 (equivalent to 0.47% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $1,609,137 (equivalent to 0.46% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $1,012,430 (equivalent to 0.46%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the period
from the start of business, April 13, 1994, to the fiscal year ended July 31,
1994, $19,481 and $1,482, respectively, of the Fund's operating expenses were
allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be continued
as described under "Service Plan" in Part I. The Trustees have initially
implemented the Plan by authorizing the Fund to make quarterly service fee
payments to the Principal Underwriter and Authorized Firms in amounts not
expected to exceed .20% of the Fund's average daily net assets for any fiscal
year based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. During the fiscal year ended July 31,
1995, the Fund made service fee payments under the Plan aggregating $28, which
amount was paid to Authorized Firms.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, total sales charges of $62,628 were
paid on sales of Fund shares. All of such amount was paid to Authorized Firms.
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $15.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $2,584 and the
Portfolio paid IBT $91,170.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex\1/:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $0 $3,594(2) $135,000(4)
Samuel L. Hayes, III ..... 0 3,569(3) 150,000(5)
Norton H. Reamer ......... 0 3,545 135,000
John L. Thorndike ........ 0 3,661 140,000
Jack L. Treynor .......... 0 3,742 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $889 of deferred compensation.
(3) Includes $1,086 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from January 8, 1991 through
July 31, 1995 and for the one year period ended July 31, 1995. The total return
for the period prior to the Fund's commencement of operations on April 13, 1994
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Total return for this time period has
not been adjusted to reflect the Fund's service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT AMOUNT OF INVESTMENT ---------------------- ----------------------
INVESTMENT PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund+ 1/8/91 $962.06 $1,331.56 38.42% 7.39% 33.16% 6.48%
1 Year Ended
7/31/95+ 7/31/94 $962.24 $1,025.94 6.62% 6.62% 2.59% 2.59%
</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 current maximum sales charge of 3.75%.
+If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended July 31, 1995, the yield of the Fund was
5.46%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.46% would be 8.47%, assuming a
combined federal and New Jersey tax rate of 35.54%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 31, 1995) was 5.69%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.84%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 December 29, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 29, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL and Smith Barney, Inc., New York, NY, were the record owners of
approximately 14.8% and 8.8%, respectively, of the outstanding shares, which
were held on behalf of their customers who are beneficial owners of such shares,
and as to which they had voting power under certain limited circumstances. To
the knowledge of the Trust, no other person owned of record or beneficially 5%
or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Traditional New Jersey Tax Free Fund to EV
Traditional New Jersey Municipals Fund on December 1, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below 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 New
Jersey State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED
FEDERAL AND A FEDERAL AND NEW JERSEY STATE
NJ STATE TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN TAX 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------------- BRACKET+ --------------------------------------------------------------------
(TAXABLE INCOME*) IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,400 Up to $ 40,100 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78% 8.38%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 31.98% 5.88 6.62 7.35 8.09 8.82 9.56 10.29
$ 58,151 - $121,300 $ 96,901 - $147,700 35.40% 6.19 6.97 7.74 8.51 9.29 10.06 10.84
$121,301 - $263,750 $147,701 - $263,750 40.08% 6.68 7.51 8.34 9.18 10.01 10.85 11.68
Over $263,750 Over $263,750 43.45% 7.07 7.96 8.84 9.73 10.61 11.49 12.38
</TABLE>
*Net amount subject to federal and New Jersey personal income tax after
deductions and exemptions.
+ The combined federal and New Jersey tax brackets are calculated using the
highest New Jersey tax rate applicable within each bracket. Taxpayers with
taxable income within such brackets may have lower combined tax brackets and
taxable equivalent yields than indicated above. The combined tax brackets
assume that New Jersey 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
then those indicated above. The applicable federal tax rates within the
brackets 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 New Jersey 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 New Jersey personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for New Jersey personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this 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 PENNSYLVANIA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Pennsylvania State and local
taxes in the form of an investment exempt from Pennsylvania personal property
taxes. The Fund currently seeks to meet its investment objective by investing
its assets in the Pennsylvania Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Pennsylvania considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Pennsylvania issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Pennsylvania issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Pennsylvania continues, however, to have a greater percentage of
its workers employed in manufacturing than the national average, leaving the
economy somewhat cyclical and vulnerable to recessionary forces. During 1993,
manufacturing accounted for 18% of employment. As of May 1995, the unadjusted
unemployment rate for Pennsylvania and the United States was 5.7%. Per capita
income in Pennsylvania for 1993 of $21,352 was higher than the per capita income
of the United States of $20,817.
REVENUES AND EXPENDITURES. Pennsylvania utilizes the fund method of accounting.
The General Fund, the State's largest fund, receives all tax receipts, revenues,
federal grants and reimbursements that are not specified by law to be deposited
elsewhere. Debt service on all obligations, except those issued for highway
purposes or for the benefit of other special revenue funds, is payable from the
General Fund. The General Fund closed fiscal years ended June 30, 1992, June 30,
1993 and June 30, 1994 with fund balances of $87,455, $698,945 and $892,940,
respectively.
The Governor's fiscal year 1996 budget contains no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending will
increase 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million and projects a $3.2
million fiscal year-end unappropriated surplus. The state Tax Stabilization Fund
had a balance at March 31, 1995 of $65.3 million.
The Pennsylvania Constitution requires all proceeds of motor fuels taxes,
vehicle registration fees, license taxes, operators' license fees and other
excise taxes imposed on products used in motor transportation to be used
exclusively for construction, reconstruction, maintenance and repair of and
safety on highways and bridges and for the payment of debt service on
obligations incurred for such purposes. The Motor License Fund is the fund
through which such revenues are accounted for and expended.
The Motor License Fund ended fiscal year ended June 30, 1994 with an
unappropriated balance of $107.5 million on a budgetary basis. State revenue
collections for fiscal year 1995 are projected to increase slightly from fiscal
1994. The budget for fiscal year 1996 includes a 2.3% increase in appropriations
from the prior year. The unappropriated balance of the General Fund at June 30,
1995 is projected to be approximately $3 million on a budgetary basis.
PENNSYLVANIA DEBT. The current Constitutional provisions pertaining to the
Pennsylvania debt permit the issuance of the following types of debt: (i) debt
to suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years (this debt need not be approved by the electorate)
and (iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Total outstanding general obligation debt totalled $5,075.8 million as of
June 30, 1994, an increase of $37.0 million from June 30, 1993. In its current
debt financing plans, Pennsylvania is emphasizing infrastructure investment to
improve and rehabilitate existing capital facilities, such as water supply
systems, and to construct new facilities, such as flood control systems and
public buildings.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
outstanding, may not exceed in the aggregate 20% of the revenues estimated to
accrue to the appropriate fund in the fiscal year. The State is not permitted to
fund deficits between fiscal years with any form of debt. All year end deficit
balances must be funded within the succeeding fiscal year's budget.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years.
STATE-RELATED OBLIGATIONS. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of or revenues derived from the various projects
financed; it is not an obligation of the State. Some of these agencies, however,
are indirectly dependent on state appropriations. State-related agencies and
their outstanding debt as of December 31, 1994 include the Delaware River Joint
Toll Bridge Commission ($56.3 million), the Delaware River Port Authority
($233.9 million), the Pennsylvania Economic Development Financing Authority
($659.9 million), the Pennsylvania Energy Development Authority ($162.1
million), the Pennsylvania Higher Education Assistance Agency ($1,283.8
million), the Pennsylvania Higher Education Facilities Authority ($1,965.8
million), the Pennsylvania Industrial Development Authority ($357.3 million),
the Pennsylvania Infrastructure Investment Authority ($227.5 million), the
Pennsylvania Turnpike Commission ($1,252.6 million), the Philadelphia Regional
Port Authority ($63.9 million) and the State Public School Building Authority
($286.8 million).
The only obligations of state-created agencies in Pennsylvania which bear a
moral obligation of the state are those issued by the Pennsylvania Housing
Finance Agency, a state-created agency which provides housing for lower and
moderate income families in the state, which had $2,300 million of bonds and
notes outstanding, and the Hospitals and Higher Education Facilities Authority
of Philadelphia which issued $21.1 million in bonds in 1993.
LOCAL GOVERNMENT DEBT. Local government in Pennsylvania consists of numerous
individual units. Each unit is distinct and independent of other local units,
although they may overlap geographically.
There is extensive general legislation applying to local government. For
example, the Local Government Unit Debt Act provides for uniform debt limits for
local government units, including municipalities and school districts, and
prescribes methods of incurring, evidencing, securing and collecting debt. Under
the Local Government Unit Debt Act, the ability of Pennsylvania municipalities
and school districts to engage in general obligation borrowing without electoral
approval is generally limited by their recent revenue collection experience.
Generally such subdivisions can levy real property taxes unlimited as to rate or
amount to pay debt service on general obligation borrowings.
Municipalities may also issue revenue obligations without limit and without
affecting their general obligation borrowing capacity if the obligations are
projected to be paid solely from project revenues.
Municipal authorities and industrial development authorities are widespread
in Pennsylvania. An authority is organized by a municipality acting singly or
jointly with another municipality and is governed by a board appointed by the
governing unit of the creating municipality or municipalities. Typically,
authorities are established to acquire, own and lease or operate one or more
projects and to borrow money and issue revenue bonds to finance them.
As of the date of this Statement of Additional Information, the City of
Philadelphia's general obligations are rated Ba, B and BB, by Moody's, S&P and
Fitch, respectively.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $502,250,304. For the
fiscal year ended July 31, 1995, the Portfolio paid BMR advisory fees of
$2,416,419 (equivalent to 0.48% of the Portfolio's average daily net assets for
such year). For the ten months ended July 31, 1994, the Portfolio paid BMR
advisory fees of $2,054,802 (equivalent to 0.46% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $1,300,484 (equivalent to 0.46%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the period
from the start of business, June 1, 1994, to the fiscal year ended July 31,
1994, $15,522 and $763, respectively, of the Fund's operating expenses were
allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be continued
as described under "Service Plan" in Part I. The Trustees have initially
implemented the Plan by authorizing the Fund to make quarterly service fee
payments to the Principal Underwriter and Authorized Firms in amounts not
expected to exceed .20% of the Fund's average daily net assets for any fiscal
year based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. During the fiscal year ended July 31,
1995, the Fund made service fee payments under the Plan aggregating $56, which
amount was paid to Authorized Firms.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, total sales charges of $58,444 were
paid on sales of Fund shares. All of such amount was paid to Authorized Firms.
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $17.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $850 and the
Portfolio paid no custodian fees to IBT.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex\1/:
<PAGE>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $0 $3,994(2) $135,000(4)
Samuel L. Hayes, III ..... 0 3,955(3) 150,000(5)
Norton H. Reamer ......... 0 3,922 135,000
John L. Thorndike ........ 0 4,043 140,000
Jack L. Treynor .......... 0 4,154 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $988 of deferred compensation.
(3) Includes $1,209 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (36) 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 January 8, 1991 through
July 31, 1995 and for the one year period ended July 31, 1995. The total return
for the period prior to the Fund's commencement of operations on June 1, 1994
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Total return for such time period has
not been adjusted to reflect the Fund's service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT AMOUNT OF INVESTMENT ---------------------- ----------------------
INVESTMENT PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life of the Fund+ 1/8/91 $962.39 $1,317.22 36.87% 7.13% 31.72% 6.23%
1 Year Ended
7/31/95+ 7/31/94 $962.64 $1,014.78 5.41% 5.41% 1.48% 1.48%
</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 current maximum sales charge of 3.75%.
+If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended July 31, 1995, the yield of the Fund was
5.46%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.46% would be 8.92%, assuming a
combined federal and State tax rate of 37.99%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 31, 1995) was 5.64%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.79%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 December 29, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 29, 1995, BHC Securities Inc., Philadelphia, PA, Merrill
Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL and Donaldson Lufkin
Jenrette Securities Corporation Inc., Jersey City, NJ were the record owners of
approximately 26.5%, 6.1% and 5.6%, respectively, of the outstanding shares,
which were held on behalf of their customers who are the benficial owners of
such shares, and as to which they had voting power under certain limited
circumstances. In addition, as of such date the following shareholders owned
beneficially and of record the percentages of outstanding shares of the Fund
indicated after their names: Charles J. Venango & Margaret Venango JTWROS,
Feasterville, PA (5.6%) and Marion Forman, Wynnewood, PA (5.6%). 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 Traditional Pennsylvania Tax Free Fund to
EV Traditional Pennsylvania Municipals Fund on December 1, 1995.
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 6% under the regular federal income tax and Pennsylvania
State and local tax laws in effect for 1996.
<TABLE>
<CAPTION>
TAXABLE YIELD NEEDED TO MATCH 6% FREE OF
--------------------------------------------
FEDERAL, STATE,
1994 TAXABLE INCOME FEDERAL FEDERAL, STATE COUNTY AND
- ----------------------------------- FEDERAL STATE AND STATE AND COUNTY PHILADELPHIA
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES TAXES (1) TAXES (2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 15.00% 2.80% 7.26% 7.80% 8.24%
$ 24,001- 58,150 $ 40,101- 96,900 28.00 2.80 8.57 9.20 9.73
$ 58,151- 121,300 $ 96,901- 147,700 31.00 2.80 8.95 9.60 10.15
$121,301- 263,750 $147,701- 263,750 36.00 2.80 9.65 10.36 10.94
Over $263,750 Over $263,750 39.60 2.80 10.22 10.97 11.59
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Equivalent yields are based on a fixed $1,000 investment with all taxes deducted
from income. Included in all areas are the effects of: federal income tax and a
2.8% Pennsylvania income tax. (1) Includes a 4 mil county personal property tax
imposed by most counties. (2) Includes a 4 mil county personal property and a
4.86% Philadelphia school income tax. The equivalent yields assume that the
Pennsylvania state and local taxes referred to above are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher equivalent yield than indicated.
Note: The above-indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions (including
Pennsylvania State and local taxes) for taxpayers with Adjusted Gross Income in
excess of $117,950. The tax brackets and taxable equivalent yields also do not
show the effects of phaseout of personal exemptions for single filers with
Adjusted Gross Income in excess of $117,950 and joint filers with Adjusted Gross
Income in excess of $176,950. The effective federal 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 Pennsylvania State and local income taxes, other
income received by the Portfolio and allocated to the Fund may be taxable. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this 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 TEXAS MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income taxes. The Fund currently seeks to achieve its
investment objective by investing its assets in the Texas Municipals Portfolio
(the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Texas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Texas issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Texas issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Once largely dependent on the drilling, production, refining, chemical and
energy-related manufacturing sectors, the economy of Texas has diversified with
the major source of job growth in the State now being the service- producing
sector (which includes transportation and public utilities, finances, insurance
and real estate, trade, services, and government). Over the past decade, the
population of Texas grew at a rate twice as fast as that of the entire United
States. Currently the third largest state in the nation, Texas is expected to
move into second place by the late 1990's.
The Texas legislature passed a $80 billion biennial budget for fiscal years
1996 and 1997. The new budget includes no new tax increases. Historically, the
primary sources of the State's revenues have been sales taxes, mineral severance
taxes and Federal grants. The beginning fiscal 1994 cash balance was $1.6
billion. The State has no personal or corporate income tax, although the State
does impose a corporate franchise tax based on the amount of a corporation's
capital and surplus. A bill was passed by the legislature reforming educational
aid. Also, the State provided additional funding contruction for poor districts.
FEES AND EXPENSES
INVESTMENT ADVISER
As of July 31, 1995, the Portfolio had net assets of $28,227,021. For the
fiscal year ended July 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $56,319 (equivalent to 0.21% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of the full amount of its advisory fee and BMR
was allocated a portion of the expenses related to the operation of the
Portfolio in the amount of $18,606. For the ten months ended July 31, 1994,
absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$31,214 (equivalent to 0.17% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a portion
of the expenses related to the operation of the Portfolio in the amount of
$35,347. For the period from the Portfolio's start of business, February 1,
1993, to the fiscal year ended September 30, 1993, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $9,014 (equivalent to 0.16%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of the full amount
of its advisory fee and BMR was allocated a portion of the expenses related to
the operation of the Portfolio in the amount of $13,473. The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1997. The Agreement 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 July 31, 1995 and for the period
from the start of business, December 8, 1993, to the fiscal year ended July 31,
1994, $15,081 and $21,269, respectively, of the Fund's operating expenses were
allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 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 fiscal year ended July 31, 1995, the Principal
Underwriter paid to Authorized Firms sales commissions of $5,561 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 $5,614. During
such period, no contingent deferred sales charges were paid to the Principal
Underwriter. As at July 31, 1995, the outstanding Uncovered Distribution Charges
of the Principal Underwriter calculated under the Distribution Plan amounted to
approximately $81,000 (which amount was equivalent to 17.3% of the Fund's net
assets on such date). During the fiscal year ended July 31, 1995, the Fund paid
service fee payments under the Distribution Plan aggregating $1,486, of which
$1,483 was paid to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $22.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended July 31, 1995, the Fund paid IBT $4,862 and the
Portfolio paid IBT $7,834.
BROKERAGE
For the fiscal year ended July 31, 1995, the ten months ended July 31, 1994,
and for the period from the start of business, February 1, 1993, to the fiscal
year ended September 30, 1993, the Portfolio paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended July 31, 1995, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, for the year
ended September 30, 1995, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex\1/:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $0 $333(2) $135,000(4)
Samuel L. Hayes, III ..... 0 322(3) 150,000(5)
Norton H. Reamer ......... 0 314 135,000
John L. Thorndike ........ 0 318 140,000
Jack L. Treynor .......... 0 343 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $83 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (34) 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 (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from March 24, 1992 through July
31, 1995 and for the one year period ended July 31, 1995. The total return for
the period prior to the Fund's commencement of operations on December 8, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Total return for this time period has
not been adjusted to reflect the Fund's service fees and certain other expenses.
The performance reflects the Fund's sales charge effective February 1, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT AMOUNT OF INVESTMENT ---------------------- ----------------------
INVESTMENT PERIOD DATE INVESTMENT* ON 7/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 3/24/92 $962.49 $1,176.61 22.25% 6.17% 17.66% 4.97%
1 Year Ended
7/31/95** 7/31/94 $962.46 $1,012.08 5.16% 5.16% 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 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 July 31, 1995, the yield of the Fund was
4.42%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.42% would be 6.41%, assuming a
federal tax rate of 31%. If a portion of the Portfolio's and the Fund's expenses
had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on July 31, 1995 and based on the
Fund's monthly distribution paid July 24, 1995) was 4.90%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.01%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
TAXES
In most every state which has an income tax, dividends paid by a mutual fund
attributable to investments in a particular state's municipal obligations are
exempt from both federal and such state's income tax. If Texas adopts an income
tax in the future, and assuming that its income tax policy with respect to
mutual funds investing in Texas state and local municipal obligations would be
similar to the general tax policy of other states, dividends paid by the Fund
would be exempt from Texas state income tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 29, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 29, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 76.9% of the outstanding
shares, which were held on behalf of its customers who are the beneficial owners
of such shares, and as to which it had voting power under certain limited
circumstances. In addition, as of such date, the following shareholder owned
beneficially and of record the percentage of outstanding shares of the Fund
indicated after the name: PaineWebber FBO, Dr. David H. Medley, Rosemary Medley,
TenCom, Dallas, TX (12.5%). 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 Texas Tax Free Fund to EV Classic
Texas Municipals Fund on December 1, 1995 and to EV Traditional Texas Municipals
Fund on February 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table shows the approximate taxable bond yields which are equivalent to
tax-exempt bond yields from 4% to 7% under the regular federal income tax laws
that apply to 1996.
<TABLE>
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE YOUR JOINT THIS FEDERAL 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS* RETURN IS* BRACKET EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
- ------------------------------------ ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 15.0% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 28.0 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 58,151 - $121,300 $ 96,901 - $147,700 31.0 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$121,301 - $263,750 $147,701 - $263,750 36.0 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $263,750 Over $263,750 39.6 6.62 7.45 8.28 9.11 9.93 10.76 11.59
</TABLE>
*Net amount subject to federal personal income tax after deductions and
exemptions.
Note: The above-indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not take into account the 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, other income received by the Portfolio and allocated
to the Fund may be taxable. This table does not take into account state or local
taxes, if any, payable on Fund distributions. It should also be noted that the
interest earned on certain "private activity bonds" issued after August 7, 1986,
while exempt from the regular federal income tax, is treated as a tax preference
item which could subject the recipient to the federal alternative minimum tax.
The illustrations assume that the federal alternative minimum tax is not
applicable.
The information set forth above is as of the date of this 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>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
- EV Classic Arizona Tax Free Fund
- EV Classic Colorado Tax Free Fund
- EV Classic Connecticut Tax Free Fund
- EV Classic Michigan Tax Free Fund
- EV Classic Minnesota Tax Free Fund
- EV Classic New Jersey Tax Free Fund
- EV Classic Pennsylvania Tax Free Fund
- EV Classic Texas Tax Free Fund
- --------------------------------------------------------------------------------
[GRAPHIC OF A DOOR]
- --------------------------------------------------------------------------------
ANNUAL SHAREHOLDER REPORT
JULY 31, 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
One-year results......................................................... 3
President's letter to shareholders....................................... 4
Management Reports:
EV Classic Arizona Tax Free Fund................................. 5
EV Classic Colorado Tax Free Fund................................ 6
EV Classic Connecticut Tax Free Fund............................. 7
EV Classic Michigan Tax Free Fund................................ 8
EV Classic Minnesota Tax Free Fund............................... 9
EV Classic New Jersey Tax Free Fund.............................. 10
EV Classic Pennsylvania Tax Free Fund............................ 11
EV Classic Texas Tax Free Fund................................... 12
Financial Results................................................ 13
</TABLE>
2
<PAGE>
<TABLE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RESULTS FOR THE YEAR Fund's The after-tax
ENDED JULY 31, 1995. Dividends paid Fund's NAV distribution If your combined equivalent Federal
by Fund per share rate at Federal & state yield you income tax
during period at 7/31/95 7/31/95 tax rate is... would need is... information*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EV Classic ARIZONA $0.458 $9.51 4.63% [GRAPHIC OF 40.42% 7.74% 99.13%
Tax Free Fund ARIZONA]
- -----------------------------------------------------------------------------------------------------------------------------------
Ev Classic COLORADO $0.466 $9.23 4.80% [GRAPHIC OF 39.20% 7.87% 99.08%
Tax Free Fund COLORADO]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic CONNECTICUT $0.461 $9.18 4.77% [GRAPHIC OF 38.88% 7.79% 99.33%
Tax Free Fund CONNECTICUT]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic MICHIGAN $0.446 $9.26 4.57% [GRAPHIC OF 41.44% 7.77% 98.93%
Tax Free Fund MICHIGAN]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic MINNESOTA $0.466 $9.30 4.75% [GRAPHIC OF 41.44% 8.09% 99.13%
Tax Free Fund MINNESOTA]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic NEW JERSEY $0.481 $9.28 4.92% [GRAPHIC OF 40.21% 8.22% 99.46%
Tax Free Fund NEW JERSEY]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic PENNSYLVANIA $0.471 $9.18 4.88% [GRAPHIC OF 37.39% 7.84% 99.75%
Tax Free Fund PENNSYLVANIA]
- -----------------------------------------------------------------------------------------------------------------------------------
EV Classic TEXAS $0.491 $9.19 5.09% [GRAPHIC OF 36.00% 7.91% 98.44%
Tax Fee Fund TEXAS]
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Percentages represent the amounts of the total dividends paid by the Funds, from net investment income during the year that ended
July 31, 1995, that have been designated as tax-exempt interest dividends. Tax legislation eliminated the exception to the market
discount rules applicable to tax-exempt obligations. As a result, certain tax-exempt obligations acquired by the Portfolio at
market discounts may generate a small amount of ordinary taxable income.
</TABLE>
3
<PAGE>
TO SHAREHOLDERS:
The global economy continues to demonstrate a pattern of slow growth with low
inflation. The U.S. economy is no exception, with Gross Domestic Product poised
to grow only modestly during 1995, between 2% and 3%, with inflation of less
than 3%. These characteristics bode well for all capital markets and
particularly fixed-income markets, including municipal bonds.
Indeed, municipal bonds performed well during the first half of 1995, posting
strong price gains as a result of this favorable investment environment.
However, during this period the municipal market underperformed the taxable
market because of concern about the potential passage of major tax reform (e.g.,
flat tax, value-added tax or consumption tax) legislation.
Were major tax reform to become law, municipal bonds would likely be
underperformers relative to taxable bonds because the current tax-advantaged
status of municipal bonds probably would be eliminated.
However, we at Eaton Vance believe there is little chance of major tax reform
legislation being enacted. Many reasons have led us to this conclusion. For
example, the inherent regressivity of the various flat tax proposals will
provoke much opposition, as will proposals to eliminate such tax breaks as
deductions for mortgage interest and state and local taxes. Also, such proposals
could seriously depress entire sectors of the U.S. economy.
Accordingly, we view this recent underperformance by municipal bonds due to
fears of tax reform as a potential buying opportunity. Municipal bonds could
represent an attractive asset class at these current relative trading
relationships, with the potential for future outperformance for those investors
willing to adopt a patient, long-term investment horizon.
In addition, proposals are now circulating in both Congress and the White House
to reduce the nation's budget deficit by severely cutting expenditures over the
next decade. If enacted, such a concept would drastically reduce the federal
government's borrowing needs and, as a result, would exert a meaningful downward
influence on interest rates across the entire yield curve. All fixed-income
instruments, including municipal bonds, would benefit.
<TABLE>
Headline: "DESPITE TAX POLICY UNCERTAINTIES, TAX-EXEMPT BONDS YIELD MORE THAN
88% OF TREASURY YIELDS.
Yield Bar Chart
<S> <C>
30-Year AA GOs 6.05%
GOs Tax-Equivalent 9.45%
30-year Treasury 8.9%
[This bar chart demonstrates the narrow difference between the yields of 30-year
Treasury bonds and those of 30-year AA-rated general obligation bonds. It also
shows the taxable equivalent yield of GOs in the 36% tax bracket.]
<FN>
Source: Bloomberg; 7/31/95
Principal and intrest payments of Treasury securities are guaranteed by the U.S.
government. *Bloomberg GO yield is a compilation of a representative variety of
general obligation bonds and is not necessarily represented by the Fund's
yield. Statistics as of July 31,1995. Past performance is no guarantee of future
results.
</TABLE>
We will continue to monitor changes in economic and political conditions and to
pursue the goal of your Fund: to provide you with a competitive distribution of
tax-free income from a portfolio of quality municipal bonds.+
Sincerely,
/s/ THOMAS J. FETTER
Thomas J. Fetter
President
September 20, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
- --------------------------------------------------------------------------------
Included in the pages that follow are performance charts that compare your
Fund's total return with that of a broad-based securities market index. The
lines on the chart represent the total returns of $10,000 hypothetical
investments in your Fund and the unmanaged Lehman Brothers Municipal Bond Index.
The solid line on the chart represents the Fund's performance. The Fund's total
return figure reflects fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions. The
dotted line represents the performance of the Lehman Brothers Municipal Bond
Index, a broad-based, widely recognized unmanaged index of municipal bonds.
Whereas the Fund's portfolio is composed principally of bonds solely from your
individual state, the Index is composed of bonds from all 50 states and many
jurisdictions. The Index's total return does not reflect any commissions or
expenses that would be incurred if an investor individually purchased or sold
the securities represented in the Index.
- --------------------------------------------------------------------------------
4
<PAGE>
EV CLASSIC ARIZONA TAX FREE FUND
YOUR INVESTMENT AT WORK
Navajo County PCR
Arizona Public Service Co.
The Arizona Public Service Company is one of the largest public utilities in
Arizona. Proceeds from this Navajo County Pollution Control Revenue bond issue
were directed toward various construction projects. In addition, funds were used
to upgrade the operations and maintenance facilities at the Navajo County
pollution control plant in the Painted Desert. The bond, which has a coupon of
5.5%, is insured by AMBAC and is rated Aaa by Moody's rating service. The issue
was representative of management's focus on quality during the period.
Naturally, private insurance does not remove the market risks associated with
this investment.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C>
Number of issues................................................... 89
Average quality.................................................... Aa-
Investment grade................................................... 95.9%
Effective maturity................................................. 17.17 yrs.
Largest sectors:
Utilities....................................................... 20.3%
Insured hospitals............................................... 13.1*
Insured general obligations..................................... 8.6*
Water & sewer................................................... 8.5
General obligations............................................. 7.9
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Arizona
Arizona's economic growth has slowed in recent months but has nevertheless
remained well ahead of the rest of the nation. The state's unemployment rate
hovered near the 5% level during the first quarter of 1995 - one full
percentage point lower than a year earlier - before rising to 5.5% at mid-year
due to weakness in the construction industry. Manufacturing - widely viewed as
the lynchpin of economic growth - has slowed somewhat from its torrid 1994 pace,
when the sector accounted for nearly 10,000 new jobs, the strongest yearly gain
in a decade.
Manufacturing jobs now represent about 11% of the state's total employment.
Efforts to diversify the Arizona economy beyond mining and agriculture continued
to pay dividends in the past year. Most of the growth has centered on the
service sectors - including finance, banking, and healthcare - which support the
state's large population of retirees. Arizona remains in sound financial
condition. The state's general fund balance was boosted by cost cuts and strong
tax revenue gains in fiscal 1994 and 1995. However, scheduled tax cuts for 1996
and 1997 will produce a financial challenge for the state if the economy slows
significantly.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC ARIZONA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through july 31, 1995
<CAPTION>
CUMULATIVE 1 LIFE
TOTAL RETURN YEAR OF FUND*
<S> <C> <C>
With CDSC 5.4% 1.8%
Without CDSC 6.4% 1.8%
</TABLE>
<TABLE>
EV CLASSIC ARIZONA TAX FREE FUND: $10,279
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE CLASSIC AZ LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,099 10,114
2/94 9,898 9,852
3/94 9,401 9,451
4/94 9,442 9,531
5/94 9,515 9,614
6/94 9,442 9,558
7/94 9,658 9,730
8/94 9,680 9,764
9/94 9,485 9,621
10/94 9,196 9,450
11/94 8,935 9,279
12/94 9,224 9,483
1/95 9,602 9,754
2/95 9,968 10,038
3/95 10,057 10,153
4/95 10,067 10,165
5/95 10,391 10,490
6/95 10,216 10,398
7/95 10,279 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/13/93. + Index information is available
only at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The market recovered significantly in the first six months of the year from the
collapse of 1994, although questions over tax reform proposals caused some
lingering uncertainty. The Portfolio benefited from its holdings of discount
issues which rallied sharply with the decline in interest rates. Because the
Arizona market was characterized by its typically low issuance and narrow
quality spreads, I have focused on upgrading quality. Moreover, I balanced a
large weighting in high quality, insured bonds with positions in higher-yielding
issues to boost the Fund's income. "
Cynthia J. Clemson
5
<PAGE>
EV CLASSIC COLORADO TAX FREE FUND
YOUR INVESTMENT AT WORK
Colorado Health Facilities Auth.
Sisters of Charity Health Care
Revenue Bonds
The proceeds of these bonds were used to finance the cost of equipment, capital
expenditures and renovations on several Colorado hospitals, as well as to refund
previous outstanding debt of the Sisters of Charity Healthcare Systems. The
Colorado Health Facilities Authority provides financing for health care
facilities and is a vehicle by which Colorado health care institutions may
refinance outstanding debt. The issue has a 5.25% coupon and is insured by MBIA.
Naturally, private insurance does not remove the market risk associated with
this investment.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues................................................... 46
Average quality.................................................... Aa-
Investment grade................................................... 99.0%
Effective maturity................................................. 17.18 yrs.
Largest sectors:
Insured hospitals............................................... 15.0%*
Housing ........................................................ 11.6
Insured general obligations..................................... 11.4*
Transportation.................................................. 11.1
Hospitals....................................................... 10.4
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Colorado
The Colorado economy has reflected the slowdown at the national level.
Employment growth for the state is expected to rise a modest 2.8% for the year,
a decline from the 4.7% job growth registered in 1994. Restructuring at several
large employers in the transportation and utilities sectors - including Lowry
Air Force Base, Public Service Co., Continental Airlines, and U.S. West -
resulted in layoffs that hit the state especially hard. However, it's expected
that when the restructurings are completed, the sector will resume its fast
growth rate.
Elsewhere, the financial, insurance and real estate sectors should
enjoy above-average employment growth. Colorado's finances remain in excellent
health, thanks in part to blockbuster revenue performance in fiscal 1994 and
very strong 5.5% revenue growth in fiscal 1995. Income and excise tax revenues
were especially strong. Colorado's successful efforts to diversify its
economic base have resulted in the state's economy more closely mirroring the
national picture. While the state's growth may be impeded somewhat by higher
interest rates, Colorado should continue to enjoy a gentler "soft landing"
than the U.S. as a whole.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC COLORADO TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 4.9% 0.2%
Without CDSC 5.9% 0.2%
</TABLE>
<TABLE>
EV CLASSIC COLORADO TAX FREE FUND: $ 9,996
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. COLORADO LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,104 10,114
2/94 9,773 9,852
3/94 9,197 9,451
4/94 9,250 9,531
5/94 9,355 9,614
6/94 9,223 9,558
7/94 9,440 9,730
8/94 9,464 9,764
9/94 9,271 9,621
10/94 9,036 9,450
11/94 8,818 9,279
12/94 9,076 9,483
1/95 9,434 9,754
2/95 9,790 10,038
3/95 9,847 10,153
4/95 9,836 10,165
5/95 10,119 10,490
6/95 9,943 10,398
7/95 9,996 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investments operations commenced 12/10/93. +Index information is available
only at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Following the most difficult year on record, the bond market managed to recover
much lost ground in early 1995. Insured bonds played a large role in the
Portfolio as tight supply and narrow spreads dictated a continuing emphasis on
quality. As rates declined early in the year, the market rallied strongly. The
Fund benefited from its positions in higher-yielding bonds and discount issues,
which were established in the wake of last year's market decline. These
positions offered an attractive balance to the Portfolio's insured holdings."
Cynthia J. Clemson
6
<PAGE>
EV CLASSIC CONNECTICUT TAX FREE FUND
YOUR INVESTMENT AT WORK
Loomis Chaffee School
MBIA Insured bonds
Issued in 1995 under the aegis of the Connecticut Health and Educational
Facilities Authority, the proceeds of these bonds were used to finance the
construction of a new dormitory and various renovations at Loomis Chaffee
School, a private secondary school located in Windsor. The school maintains a
selective admissions policy, has an endowment of $30 million, and has an
outstanding debt of only half that amount. The school's impressive profile and
balanced finances gave MBIA the comfort to insure this issue, which is rated
Aaa/AAA. Naturally, private insurance does not remove the market risk associated
with this investment.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C>
Number of issues................................................... 100
Average quality.................................................... Aa-
Investment grade................................................... 99.5%
Effective maturity................................................. 16.6 yrs.
Largest sectors:
Healthcare (Non-Hospital)....................................... 12.5%
Education....................................................... 10.8
Insured hospitals............................................... 10.0*
Housing......................................................... 8.2
Solid waste..................................................... 8.1
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Connecticut
The economy in Connecticut is beginning to regain its luster. Economic
indicators such as job growth and personal income continue to strengthen from
their late 1980s bout with layoffs and restructuring that afflicted the state.
The state's deep recession led to major job losses in such industries as
finance, real estate, insurance and defense, which were hard-hit by industry
restructurings, and shrinking government appropriations. Together, those
setbacks eroded the state's economic base. However, while the employment outlook
for those industries remains relatively weak, job gains in construction,
service, trade, health care and tourism have partially offset those losses and
have helped put the state on the road to recovery.
While the municipal market has been roiled by uncertainties over tax reform and
the fallout from the Orange County debacle, investors in Connecticut tax-exempt
debt can feel comfortable knowing that this state has a long history of
conservative financial management and employs good disclosure practices.
Connecticut is steadily advancing beyond the difficulties of its recent past and
is moving to improve its financial future.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN EV CLASSIC CONNECTICUT
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 3.5% -0.2%
Without CDSC 4.5% -0.2%
</TABLE>
<TABLE>
EV CLASSIC CONNECTICUT TAX FREE FUND: $ 9,956
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. CONN. LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,086 10,114
2/94 9,854 9,852
3/94 9,348 9,451
4/94 9,370 9,531
5/94 9,444 9,614
6/94 9,343 9,558
7/94 9,529 9,730
8/94 9,531 9,764
9/94 9,337 9,621
10/94 9,070 9,450
11/94 8,747 9,279
12/94 9,037 9,483
1/95 9,373 9,754
2/95 9,687 10,038
3/95 9,765 10,153
4/95 9,764 10,165
5/95 10,015 10,490
6/95 9,860 10,398
7/95 9,956 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/9/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The extreme market volatility of last autumn created a good opportunity to
purchase deep discount bonds - even among high quality AA- and AAA-rated bonds -
and pick up yield without sacrificing credit quality. By the Spring of 1995, the
market had rallied sharply and these discount bonds had significantly
outperformed other segments of the market, adding to the performance of the
Fund. The market has quieted in recent months, especially the Connecticut
market, where new issuance is limited largely to generic general obligation
issues."
Nicole Anderes
7
<PAGE>
EV CLASSIC MICHIGAN TAX FREE FUND
YOUR INVESTMENT AT WORK
City of Detroit,MI
Convention Facility Tax Revenue
Cobo Hall Expansion Project
The proceeds of these bonds were used to pre-refund a previous bond issued in
1985. The previous bond financed the acquisition and construction costs of
expanding Detroit's Cobo Hall Convention Center, a major convention and
entertainment complex. This bond is backed by the City's share of distributions
of the state of Michigan hotel occupancy tax and liquor tax deposited in the
Convention Facility Development Fund. The bond has a coupon of 5.25% and is a
good example of the Fund's efforts during the period to seek value in non-rated
bonds.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C>
Number of issues................................................... 105
Average quality.................................................... AA-
Investment grade................................................... 98.6%
Effective maturity................................................. 15.52 yrs.
Largest sectors:
Hospitals....................................................... 12.9%
Insured general obligations..................................... 12.8*
Insured hospitals............................................... 12.4*
Insured water & sewer........................................... 7.5*
Insured electric utilities...................................... 6.3*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Michigan
Michigan's economy remained on the upswing in 1995. The state's unemployment
rate fell to 5.1% in July as the retail, construction, and manufacturing sectors
of the economy each continued to post good results. Motor vehicle sales, while
below 1994's blistering 8.5% growth rate, continued at an annual rate well above
15 million units.The state's wage and salary levels rose slightly from last
year, with construction employment especially robust, registering a 12% gain.
Reflecting a strong regional economy, housing starts in the midwest region
surpassed those nationally.
Michigan's 1995 tax revenues are running well above last year's, with baseline
revenues rising a strong 15.4% in June. Most of the revenue increase is the
result of strong growth in income, single-business, and use taxes. The state has
also benefited from a 200% increase in the cigarette tax rate, as well as the
start-up of the new state education property and real estate taxes. As a result
of cost containment measures, tax and educational funding reforms, strong
personal income growth and tax revenue growth, Michigan's financial picture has
brightened dramatically. Reflecting that improvement, the state's credit rating
has been upgraded to AA.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC MICHIGAN TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 4.5% 0.2%
Without CDSC 5.5% 0.2%
</TABLE>
<TABLE>
EV CLASSIC MICHIGAN TAX FREE FUND: $10,006
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. MICHIGAN LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,117 10,114
2/94 9,815 9,852
3/94 9,287 9,451
4/94 9,339 9,531
5/94 9,402 9,614
6/94 9,299 9,558
7/94 9,483 9,730
8/94 9,505 9,764
9/94 9,351 9,621
10/94 9,104 9,450
11/94 8,874 9,279
12/94 9,120 9,483
1/95 9,444 9,754
2/95 9,745 10,038
3/95 9,832 10,153
4/95 9,830 10,165
5/95 10,111 10,490
6/95 9,945 10,398
7/95 10,006 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/7/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Although quality spreads - the yield difference between bonds of varying
quality - were narrow during the period, management sought opportunities in
non-rated bonds and private placements. These bonds offered opportunities to add
incremental yield to the Fund. The Fund concurrently reduced its exposure to AA
bonds, adopting a barbell strategy. That strategy should benefit the Fund in
coming months if, as I believe, income begins to comprise an increasingly large
part of total return for fixed-income investments."
Timothy T. Browse
8
<PAGE>
EV CLASSIC MINNESOTA TAX FREE FUND
YOUR INVESTMENT AT WORK
Duluth MN Economic Dev. Auth
Health Care Facilities
The Duluth Clinic Ltd
The proceeds of these bonds were used to finance improvements for the
Duluth-based health clinic, as well as to refund bonds previously issued by the
Clinic.
The issue financed the acquisition of land and the building of a
55,000-square-feet clinic addition, the remodelling of additional facilities,
and the purchase and installation of new medical equipment. The bonds have a
6.2% coupon and are insured by AMBAC. Naturally, private insurance does not
remove the market risk associated with this investment.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues.................................................. 75
Average quality................................................... AA
Investment grade.................................................. 98.8%
Effective maturity................................................ 16.73 yrs.
Largest sectors:
Insured hospitals.............................................. 19.6%*
Housing........................................................ 13.6
General obligations............................................ 11.1
Industrial development/Pollution Control....................... 8.8
Hospitals...................................................... 6.9
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Minnesota
The Minnesota economy gathered momentum in the first half of 1995, with
signficant employment gains and a boost in real income. The state's jobless rate
neared historic lows as manufacturing and large retail expansions resulted in
fast job growth. Once again, the state's computer, electronics, and technology
industries were responsible for much of the employment gains. The agricultural
and food-processing sectors also enjoyed job additions. The state's economy also
benefited from infrastructure repairs and construction in areas ravaged by the
previous year's floods.
Due to Minnesota's resurgent economy, it is likely that income tax and sales tax
receipts will exceed previous budget forecasts. In a robust economic
environment, the state has been able to restore its previously depleted reserve
funds. Minnesota continues to benefit from its wide exposure to the rapidly
growing health care and technology sectors, and should be able to weather a
potential slowdown at the national level. However, the state is concurrently
facing growing social services and public safety costs that may prove a larger
financial burden in the future.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC MINNESOTA
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 3.5% 0.6%
Without CDSC 4.5% 0.6%
</TABLE>
<TABLE>
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
EV CLASSIC MINNESOTA TAX FREE FUND: $10,040
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
<CAPTION>
DATE C. MINNESOTA LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,095 10,114
2/94 9,875 9,852
3/94 9,401 9,451
4/94 9,424 9,531
5/94 9,528 9,614
6/94 9,448 9,558
7/94 9,613 9,730
8/94 9,637 9,764
9/94 9,464 9,621
10/94 9,209 9,450
11/94 8,919 9,279
12/94 9,208 9,483
1/95 9,501 9,754
2/95 9,824 10,038
3/95 9,934 10,153
4/95 9,913 10,165
5/95 10,162 10,490
6/95 9,988 10,398
7/95 10,040 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/9/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Market conditions have resulted in very narrow quality spreads in 1995. In this
climate, I have employed a "barbell" strategy, emphasizing quality on one hand
and incremental yield additions on the other. The Portfolio's insured bonds have
been an important source of quality and liquidity. Meanwhile, I have generally
avoided par bonds in favor of discount issues. Finally, I have carefully
researched high-yielding issues as a way to add selectively to the Fund's yield
and have added to the health care sector, which has grown more attractive in
recent months."
Robert B. MacIntosh
9
<PAGE>
EV CLASSIC NEW JERSEY TAX FREE FUND
YOUR INVESTMENT AT WORK
Gloucester County, NJ
Utility Authority
Water & Sewer Revenue Bonds
Issued by the Gloucester County Utility Authority, this bond was dedicated to
funding Phase III of a waste treatment facility in Gloucester County.
Specifically, the program is designed to upgrade the maintenance and operating
efficiency of a waste treatment facility. By constructing a second sludge
incinerator, the plant should reach a 20% increase in its daily capacity. The
bond provided improvements for the County, while representing an attractive
yielding investment supported by residents' water and sewer bill payments.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues.................................................. 130
Average quality................................................... A
Investment grade.................................................. 87.6%
Effective maturity................................................ 16.25 yrs.
Largest sectors:
Transportation................................................. 15.1%
General obligations............................................ 13.3
Solid waste.................................................... 6.8
Hospitals...................................................... 6.6
Insured lease revenue.......................................... 5.8*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: New Jersey
The New Jersey economy has reflected the slower activity of the national scene.
Declines in the housing market, manufacturing, and consumer spending have
contributed to the state's slowdown. Nearly 10,000 jobs have been lost in
manufacturing alone this year. The state's unemployment rate stood at 6.8% in
July, remaining well above the national rate. On a more positive note, the
service sector continued to add jobs. More than two-thirds of the 52,000 private
sector jobs created in the past year within the state were generated by the
service segment, including business, management, engineering, retailing, food
services, and health care. And while housing starts were depressed, outlays for
commercial construction and public works projects remained fairly strong.
New Jersey has benefited from its increasingly well-managed financial operations
and a strong display of fiscal prudence by the Whitman administration.
Implementing stricter cost controls and reductions in expenditures, New Jersey
is providing a model for other states hoping to control social spending.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC NEW JERSEY
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
- ---------------------------------------
<S> <C> <C>
With CDSC 4.2% 0.7%
Without CDSC 5.2% 0.7%
</TABLE>
<TABLE>
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
EV CLASSIC NEW JERSEY TAX FREE FUND: $10,067
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
<CAPTION>
DATE C. NEW JERSEY LEHMAN BROS.
- ------------------------------------------------------
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,087 10,114
2/94 9,868 9,852
3/94 9,413 9,451
4/94 9,458 9,531
5/94 9,523 9,614
6/94 9,424 9,558
7/94 9,570 9,730
8/94 9,616 9,764
9/94 9,454 9,621
10/94 9,231 9,450
11/94 8,983 9,279
12/94 9,243 9,483
1/95 9,538 9,754
2/95 9,790 10,038
3/95 9,881 10,153
4/95 9,892 10,165
5/95 10,155 10,490
6/95 10,024 10,398
7/95 10,067 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/3/93. + Index information is available
only at month-end, therefore, the line comparison begins at the next
month-end following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The past year has proven to be a highly volatile period for the bond market,
given last year's sharp decline and the subsequent strong market rally we have
enjoyed in 1995. I have focused on the insured sector to provide quality and
ensure good liquidity for the Portfolio. At the same time, I've increased
slightly the Portfolio's exposure to the health care sector, which has improved
somewhat in recent months, and have added some select high-yielding situations,
which helped add yield to the Fund."
Robert B. MacIntosh
10
<PAGE>
EV CLASSIC PENNSYLVANIA TAX FREE FUND
YOUR INVESTMENT AT WORK
Chester County
Industrial Development Auth. Senior Life Choice of Kimberton
The proceeds of these bonds are being used to fund the construction of the
Continuing Care Retirement Center, an assisted living project in Kimberton, PA.
This issue is a good example of the Portfolio's efforts to focus on non-rated
bonds and private placement issues. Because the issue was purchased in its
entirety by Eaton Vance, we were able to structure the deal with favorable
terms. With an 8.05% coupon, the bonds represent a 250 basis point advantage
over other long-term Pennsylvania issues.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues................................................. 132
Average quality.................................................. Aa-
Investment grade................................................. 95.1%
Effective maturity............................................... 14.13 yrs.
Largest sectors:
Hospitals..................................................... 22.6%
Housing....................................................... 12.3
Industrial development authority.............................. 8.7
Insured hospitals............................................. 7.1*
Escrowed...................................................... 6.5
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Pennsylvania
The Pennsylvania economy continues to demonstrate the beneficial effects of a
shift from its past reliance on manufacturing toward a growing diversification
into the service sectors. Pennsylvania's unemployment rate declined sharply
during the period, falling to 5.4% in July. The service sector continued to
account for nearly two-thirds of the state's job gains, with health services and
social services pacing the gains. Durable goods manufacturing also added
significantly to job growth, led by metals and industrial machinery.
Pennsylvania has now posted three consecutive years with surplus operations.
That marks a significant departure from the early 1990s, when a declining
cyclical economy and rising social costs played havoc with the state's finances.
Importantly, with an improved economic mix and a stronger national and regional
picture, Pennsylvania has returned to fiscal balance in recent years. The
Commonwealth's fiscal outlook has benefited from a tax package implemented in
1991, as well as from stricter cost controls and an improving revenue base
resulting from a stronger economy.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC PENNSYLVANIA
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 4.4% 0.1%
Without CDSC 5.4% 0.1%
</TABLE>
<TABLE>
EV CLASSIC PENNSYLVANIA TAX FREE FUND: $ 9,979
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. PENNSYLVANIA LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,111 10,114
2/94 9,831 9,852
3/94 9,314 9,451
4/94 9,348 9,531
5/94 9,423 9,614
6/94 9,322 9,558
7/94 9,468 9,730
8/94 9,502 9,764
9/94 9,350 9,621
10/94 9,125 9,450
11/94 8,823 9,279
12/94 9,062 9,483
1/95 9,368 9,754
2/95 9,651 10,038
3/95 9,762 10,153
4/95 9,752 10,165
5/95 10,047 10,490
6/95 9,925 10,398
7/95 9,979 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/3/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The market outlook for the municipal sector has improved significantly
following a difficult 1994. With a slow growth economy and relatively low
municipal supply, the municipal market has fared well in 1995. Accordingly, I
have become somewhat more constructive toward the market, adding to positions in
bonds that tend to be more sensitive to interest rate changes. Elsewhere, I've
continued to be very selective about investments in hospital bonds. Finally, in
a fairly quiet market, I have looked increasingly to private placements and
non-rated bonds for opportunities to increase the Fund's yield."
David C. Reilly
11
<PAGE>
EV CLASSIC TEXAS TAX FREE FUND
YOUR INVESTMENT AT WORK
Round Rock TX School District
Permanent School Fund
The Round Rock, TX school district serves a small community north of Austin.
Insured by the state's Permanent School Fund, the issue is rated AAA. The
state's Permanent School Fund finances Texas public education, with interest and
dividend income subsidizing local school operations. PSF bonds are popular with
the state's investors because they benefit Texas schools only and represent a
further diversification away from the major national municipal insurers.
Naturally, private insurance does not remove the market risk associated with
this investment.
<TABLE>
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<S> <C>
Number of issues................................................. 60
Average quality.................................................. AA
Investment grade................................................. 97.3%
Effective maturity............................................... 16.49 yrs.
Largest sectors:
General obligations........................................... 16.8%
Insured electric utilities.................................... 14.5*
Insured transportation........................................ 12.0*
Hospitals..................................................... 11.1
Industrial develop./pollution control......................... 7.0
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Texas
The Texas economy has outpaced the national output throughout the 1990s. The
economy continues to expand while diversifying its employment base. In 1994
alone, 250,000 jobs were added. That pace is expected to continue into 1995, as
the state increases its exposure to the manufacturing and service sectors.
Construction has been especially strong as the state has seen a strong
in-migration from other states. That is a marked departure from the 1980s, when
the oil and gas economy was wracked by a deep recession. In July, the state's
unemployment rate hovered around the 6% level, slightly above the national rate.
The Texas financial picture is improving. Despite a 10% growth in budgeted
expenditures, the state has returned to a balanced budget due to a surge in
income tax and sales tax revenues. The state is expanding its economy and is
poised to benefit from increased trade with Latin America. Texas is also
addressing important fiscal issues, including Medicaid, welfare reform, and
educational funding.
- --------------------------------------------------------------------------------
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC TEXAS TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through July 31, 1995
<CAPTION>
CUMULATIVE 1 Life
TOTAL RETURN Year of Fund*
<S> <C> <C>
With CDSC 4.2% 0.3%
Without CDSC 5.2% 0.3%
</TABLE>
<TABLE>
EV CLASSIC TEXAS TAX FREE FUND: $10,041
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,496
[BAR CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. TEXAS LEHMAN BROS.
<S> <C> <C>
12/93+ 10,000 10,000
1/94 10,141 10,114
2/94 9,822 9,852
3/94 9,275 9,451
4/94 9,321 9,531
5/94 9,418 9,614
6/94 9,328 9,558
7/94 9,538 9,730
8/94 9,585 9,764
9/94 9,403 9,621
10/94 9,138 9,450
11/94 8,847 9,279
12/94 9,141 9,483
1/95 9,482 9,754
2/95 9,811 10,038
3/95 9,893 10,153
4/95 9,873 10,165
5/95 10,171 10,490
6/95 9,996 10,398
7/95 10,041 10,496
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 12/8/93. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"In a market characterized by narrow quality spreads, insured bonds composed a
significant portion of the Portfolio, affording continuing high quality as well
as good liquidity. While insured bonds provided quality, I looked to the
non-rated sectors to add yield to the Fund. I sought to take advantage of market
inefficiencies in that sector to add attractive issues to the Portfolio. In my
view, income is likely to be an increasingly important component of total return
in coming months."
Timothy T. Browse
12
<PAGE>
-------
Ev Classic Tax Free Funds
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $2,424,131 $1,912,275 $4,593,347 $4,558,125
Unrealized appreciation (depreciation) 8,446 38,550 (1,480) (45,753)
---------- ---------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $2,432,577 $1,950,825 $4,591,867 $4,512,372
Receivable for Fund shares sold 10,010 -- -- --
Receivable from the Administrator (Note 4) 18,453 17,169 22,099 12,579
Other assets 565 -- -- --
Deferred organization expenses (Note 1D) 6,959 5,906 7,658 7,360
---------- ---------- ---------- ----------
Total assets $2,468,564 $1,973,900 $4,621,624 $4,532,311
---------- ---------- ---------- ----------
LIABILITIES:
Dividends payable $ 2,179 $ 1,814 $ 4,225 $ 3,965
Payable for Fund shares redeemed -- -- 2,209 51,151
Payable to affiliates --
Trustees' fees -- -- -- 14
Custodian fee 84 84 84 63
Accrued expenses 1,091 895 1,446 1,692
---------- ---------- ---------- ----------
Total liabilities $ 3,354 $ 2,793 $ 7,964 $ 56,885
---------- ---------- ---------- ----------
NET ASSETS $2,465,210 $1,971,107 $4,613,660 $4,475,426
========== ========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $2,588,829 $2,083,570 $4,730,988 $4,861,363
Accumulated net realized loss on investment and financial
futures transactions (computed on the basis of
identified cost) (140,470) (157,228) (118,946) (354,495)
Accumulated undistributed net investment income 8,405 6,215 3,098 14,311
Unrealized appreciation (depreciation) of investments and
financial futures contracts from Portfolio (computed
on the basis of identified cost) 8,446 38,550 (1,480) (45,753)
---------- ---------- ---------- ----------
Total $2,465,210 $1,971,107 $4,613,660 $4,475,426
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 259,292 213,512 502,774 483,268
========== ========== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (net assets / shares of beneficial interest
outstanding)(Note 6) $9.51 $9.23 $9.18 $9.26
===== ===== ===== =====
</TABLE>
See notes to financial statements
13
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
---------- ---------- ------------ --------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $3,599,799 $3,296,342 $2,780,049 $476,950
Unrealized appreciation (depreciation) 60,097 (11,443) (144,008) (31,789)
---------- ---------- ---------- --------
Total investment in Portfolio, at value (Note 1A) $3,659,896 $3,284,899 $2,636,041 $445,161
Receivable for Fund shares sold -- -- -- --
Receivable from the Administrator (Note 4) 24,179 22,188 19,615 15,081
Deferred organization expenses (Note 1D) 9,097 10,081 8,898 9,588
---------- ---------- ---------- --------
Total assets $3,693,172 $3,317,168 $2,664,554 $469,830
---------- ---------- ---------- --------
LIABILITIES:
Dividends payable $ 3,361 $ 3,135 $ 2,514 $ 457
Payable for Fund shares redeemed -- 5,000 39,234 --
Payable to affiliates --
Trustees' fees 14 -- -- --
Custodian fee 84 84 -- 84
Accrued expenses 1,402 1,553 1,973 668
---------- ---------- ---------- --------
Total liabilities $ 4,861 $ 9,772 $ 43,721 $ 1,209
---------- ---------- ---------- --------
NET ASSETS $3,688,311 $3,307,396 $2,620,833 $468,621
========== ========== ========== ========
SOURCES OF NET ASSETS:
Paid-in capital $3,936,636 $3,495,659 $3,038,340 $561,594
Accumulated net realized loss on investment and financial
futures transactions (computed on the basis of
identified cost) (321,125) (182,451) (281,486) (61,218)
Accumulated undistributed net investment income 12,703 5,631 7,987 34
Unrealized appreciation (depreciation) of investments and
financial futures contracts from Portfolio (computed on
the basis of identified cost) 60,097 (11,443) (144,008) (31,789)
---------- ---------- ---------- --------
Total $3,688,311 $3,307,396 $2,620,833 $468,621
========== ========== ========== ========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 396,543 356,587 285,423 51,002
========== ========== ========== ========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (net assets / shares of beneficial interest
outstanding)(Note 6) $9.30 $9.28 $9.18 $9.19
===== ===== ===== =====
</TABLE>
See notes to financial statements
14
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 190,274 $ 140,211 $ 240,411 $ 346,533
Expenses allocated from Portfolio (15,748) (5,718) (20,347) (26,465)
--------- --------- --------- ---------
Net investment income from Portfolio $ 174,526 $ 134,493 $ 220,064 $ 320,068
--------- --------- --------- ---------
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ -- $ -- $ -- $ 163
Distribution costs (Note 5) 28,540 21,174 36,577 51,466
Custodian fees (Note 4) 4,972 4,950 3,449 3,955
Registration costs 5,314 186 550 1,289
Legal and accounting services 5,288 4,155 5,366 7,626
Transfer and dividend disbursing agent fees 2,370 1,532 3,252 4,130
Amortization of organization expenses (Note 1D) 1,990 1,763 2,284 2,166
Printing and postage 1,535 5,099 5,279 5,950
Miscellaneous 737 578 1,919 1,157
--------- --------- --------- ---------
Total expenses $ 50,746 $ 39,437 $ 58,676 $ 77,902
Deduct allocation of expenses to the Administrator (Note 4) 18,453 17,169 22,099 12,579
--------- --------- --------- ---------
Net expenses $ 32,293 $ 22,268 $ 36,577 $ 65,323
--------- --------- --------- ---------
Net investment income $ 142,233 $ 112,225 $ 183,487 $ 254,745
--------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(101,251) $(106,034) $ (54,933) $(184,280)
Financial futures contracts (17,601) (31,604) (64,301) (55,979)
--------- --------- --------- ----------
Net realized loss on investments $(118,852) $(137,638) $(119,234) $(240,259)
Change in unrealized appreciation of investments and
financial futures contracts 158,005 125,129 103,779 255,527
--------- --------- --------- ---------
Net realized and unrealized gain (loss) $ 39,153 $ (12,509) $ (15,455) $ 15,268
--------- --------- --------- ---------
Net increase in net assets from operations $ 181,386 $ 99,716 $ 168,032 $ 270,013
========= ========= ========= =========
</TABLE>
See notes to financial statements
15
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
--------- ---------- ------------ --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 302,088 $ 231,446 $ 217,731 $ 45,245
Expenses allocated from Portfolio (22,764) (18,665) (16,581) (467)
--------- --------- --------- --------
Net investment income from Portfolio $ 279,324 $ 212,781 $ 201,150 $ 44,778
--------- --------- --------- --------
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 136 $ -- $ -- $ --
Distribution costs (Note 5) 45,493 33,946 31,462 6,864
Custodian fees (Note 4) 3,348 4,973 2,576 4,862
Registration costs 1,821 840 -- --
Legal and accounting services 5,632 4,243 6,698 3,463
Transfer and dividend disbursing agent fees 1,762 2,698 2,591 713
Amortization of organization expenses (Note 1D) 2,719 3,022 2,664 1,356
Printing and postage 9,793 6,412 4,459 4,327
Miscellaneous 1,178 -- 1,455 360
--------- --------- --------- --------
Total expenses $ 71,882 $ 56,134 $ 51,905 $ 21,945
Deduct allocation of expenses to the Administrator
(Note 4) 24,179 22,188 19,615 15,081
--------- --------- --------- --------
Net expenses $ 47,703 $ 33,946 $ 32,290 $ 6,864
--------- --------- --------- --------
Net investment income $ 231,621 $ 178,835 $ 168,860 $ 37,914
--------- --------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(245,784) $(130,673) $(189,650) $(43,354)
Financial futures contracts (59,656) (38,339) (36,892) (4,571)
--------- --------- --------- --------
Net realized loss on investments $(305,440) $(169,012) $(226,542) $(47,925)
Change in unrealized appreciation of investments and
financial future contracts 307,608 149,685 162,979 13,112
--------- --------- --------- --------
Net realized and unrealized gain (loss) $ 2,168 $ (19,327) $ (63,563) $(34,813)
--------- --------- --------- --------
Net increase in net assets from operations $ 233,789 $ 159,508 $ 105,297 $ 3,101
========= ========= ========= ========
</TABLE>
See notes to financial statements
16
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 142,233 $ 112,225 $ 183,487 $ 254,745
Net realized loss on investments (118,852) (137,638) (119,234) (240,259)
Change in unrealized appreciation of investments 158,005 125,129 103,779 255,527
----------- ----------- ---------- -----------
Net increase in net assets from operations $ 181,386 $ 99,716 $ 168,032 $ 270,013
----------- ----------- ---------- -----------
Distributions to shareholders (Note 2) --
From net investment income $ (142,233) $ (112,225) $ (183,487) $ (254,745)
In excess of net investment income (7,151) (3,110) (10,948) (14,453)
----------- ----------- ---------- -----------
Total distributions to shareholders $ (149,384) $ (115,335) $ (194,435) $ (269,198)
----------- ----------- ---------- -----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 2,579,387 $ 1,183,260 $2,108,441 $ 824,670
Net asset value of shares issued to shareholders
in payment of distributions declared 107,328 82,822 154,657 219,640
Cost of shares redeemed (2,665,165) (1,621,569) (837,950) (2,935,769)
----------- ----------- ---------- -----------
Increase (decrease) in net assets from Fund
share transactions $ 21,550 $ (355,487) $1,425,148 $(1,891,459)
----------- ----------- ---------- -----------
Net increase (decrease) in net assets $ 53,552 $ (371,106) $1,398,745 $(1,890,644)
NET ASSETS:
At beginning of year 2,411,658 2,342,213 3,214,915 6,366,070
----------- ----------- ---------- -----------
At end of year $ 2,465,210 $ 1,971,107 $4,613,660 $ 4,475,426
=========== =========== ========== ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 8,405 $ 6,215 $ 3,098 $ 14,311
=========== =========== ========== ===========
</TABLE>
See notes to financial statements
17
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 231,621 $ 178,835 $ 168,860 $ 37,914
Net realized loss on investments (305,440) (169,012) (226,542) (47,925)
Change in unrealized appreciation of investments 307,608 149,685 162,979 13,112
----------- ----------- ----------- ----------
Net increase in net assets from operations $ 233,789 $ 159,508 $ 105,297 $ 3,101
----------- ----------- ----------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (231,621) $ (178,835) $ (168,860) $ (37,914)
In excess of net investment income (11,629) (9,613) (7,552) (2,657)
----------- ----------- ----------- ----------
Total distributions to shareholders $ (243,250) $ (188,448) $ (176,412) $ (40,571)
----------- ----------- ----------- ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 1,422,669 $ 646,496 $ 694,753 $ 111,406
Net asset value of shares issued to shareholders
in payment of distributions declared 73,152 112,416 128,368 22,726
Cost of shares redeemed (2,749,588) (1,139,533) (2,833,146) (774,799)
----------- ----------- ----------- ----------
Decrease in net assets from Fund share
transactions $(1,253,767) $ (380,621) $(2,010,025) $ (640,667)
----------- ----------- ----------- ----------
Net decrease in net assets $(1,263,228) $ (409,561) $(2,081,140) $ (678,137)
NET ASSETS:
At beginning of year 4,951,539 3,716,957 4,701,973 1,146,758
----------- ----------- ----------- ----------
At end of year $ 3,688,311 $ 3,307,396 $ 2,620,833 $ 468,621
=========== =========== =========== ==========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 12,703 $ 5,631 $ 7,987 $ 34
=========== =========== =========== ==========
</TABLE>
See notes to financial statements
18
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 57,360 $ 41,385 $ 42,705 $ 138,309
Net realized gain (loss) on investments (21,618) (19,590) 288 (114,236)
Unrealized depreciation of investments (149,559) (86,579) (105,259) (301,280)
----------- ---------- ---------- ----------
Net decrease in net assets from operations $ (113,817) $ (64,784) $ (62,266) $ (277,207)
----------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (57,360) $ (41,385) $ (42,705) $ (138,309)
In excess of net investment income (10,784) (9,541) (11,630) (24,606)
----------- ---------- ---------- ----------
Total distributions to shareholders $ (68,144) $ (50,926) $ (54,335) $ (162,915)
----------- ---------- ---------- ----------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sales of shares $ 4,401,491 $3,305,061 $3,775,008 $7,607,237
Net asset value of shares issued to shareholders in
payment of distributions declared 46,302 31,649 36,571 123,118
Cost of shares redeemed (1,854,174) (878,787) (480,063) (924,163)
----------- ---------- ---------- ----------
Increase in net assets from Fund share transactions $ 2,593,619 $2,457,923 $3,331,516 $6,806,192
----------- ---------- ---------- ----------
Net increase in net assets $ 2,411,658 $2,342,213 $3,214,915 $6,366,070
NET ASSETS:
At beginning of period -- -- -- --
----------- ---------- ---------- ----------
At end of period $ 2,411,658 $2,342,213 $3,214,915 $6,366,070
=========== ========== ========== ==========
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (415) $ (2,228) $ (3,810) $ 65
=========== ========== ========== ==========
</TABLE>
* For the Classic Arizona, Classic Colorado, Classic Connecticut and Classic
Michigan Funds, the Statements of Changes in Net Assets are for the period
from the start of business, December 13, 1993, December 10, 1993, December 9,
1993, and December 7, 1993, respectively, to July 31, 1994.
See notes to financial statements
19
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 101,803 $ 67,465 $ 113,896 $ 25,192
Net realized loss on investments (15,685) (13,439) (54,944) (13,293)
Unrealized depreciation of investments (247,511) (161,128) (306,987) (44,901)
---------- ---------- ------------ ----------
Net decrease in net assets from operations $ (161,393) $ (107,102) $ (248,035) $ (33,002)
---------- ---------- ------------ ----------
Distributions to shareholders (Note 2) --
From net investment income $ (101,803) $ (67,465) $ (113,896) $ (25,192)
In excess of net investment income (18,488) (14,760) (21,849) (5,699)
---------- ---------- ------------ ----------
Total distributions to shareholders $ (120,291) $ (82,225) $ (135,745) $ (30,891)
---------- ---------- ------------ ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $5,944,730 $4,695,484 $ 6,980,797 $1,336,515
Net asset value of shares issued to shareholders in
payment of distributions declared 50,263 50,221 109,237 10,081
Cost of shares redeemed (761,770) (839,421) (2,004,281) (135,945)
---------- ---------- ----------- ----------
Increase in net assets from Fund share transactions $5,233,223 $3,906,284 $ 5,085,753 $1,210,651
---------- ---------- ----------- ----------
Net increase in net assets $4,951,539 $3,716,957 $ 4,701,973 $1,146,758
NET ASSETS:
At beginning of period -- -- -- --
---------- ---------- ----------- ----------
At end of period $4,951,539 $3,716,957 $ 4,701,973 $1,146,758
========== ========== =========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (875) $ (3,068) $ (2,598) $ (1,487)
========== ========== =========== ==========
</TABLE>
* For the Classic Minnesota, Classic New Jersey, Classic Pennsylvania and
Classic Texas Funds, the Statements of Changes in Net Assets are for the
period from the start of business, December 9, 1993, December 3, 1993,
December 3, 1993, and December 8, 1993, respectively, to July 31, 1994.
See notes to financial statements
20
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC ARIZONA FUND CLASSIC COLORADO FUND CLASSIC CONNECTICUT FUND
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.390 $ 10.000 $ 9.180 $ 10.000 $ 9.250 $ 10.000
------- -------- ------- -------- ------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.432 $ 0.253 $ 0.450 $ 0.256 $ 0.431 $ 0.246
Net realized and
unrealized gain (loss)
on investments 0.142 (0.563) 0.062++ (0.761) (0.044) (0.683)
------- -------- ------- -------- ------- --------
Total income (loss)
from operations $ 0.574 $ (0.310) $ 0.512 $ (0.505) $ 0.387 $ (0.437)
------- -------- ------- -------- ------- --------
LESS DISTRIBUTIONS:
From net investment
income $(0.432) $ (0.253) $(0.450) $ (0.256) $(0.431) $ (0.246)
In excess of net
investment income (0.022) (0.047) (0.012) (0.059) (0.026) (0.067)
------- -------- ------- -------- ------- --------
Total distributions $(0.454) $ (0.300) $(0.462) $ (0.315) $(0.457) $ (0.313)
------- -------- ------- -------- ------- --------
NET ASSET VALUE,
end of year $ 9.510 $ 9.390 $ 9.230 $ 9.180 $ 9.180 $ 9.250
======= ======== ======= ======== ======= ========
TOTAL RETURN (2) 6.44% (3.23)% 5.89% (5.22)% 4.49% (4.53)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of period
(000 omitted) $ 2,465 $ 2,412 $ 1,971 $ 2,342 $ 4,614 $ 3,215
Ratio of net expenses
to average daily
net assets (1) 1.60% 1.75%+ 1.26% 1.38%+ 1.48% 1.64%+
Ratio of net investment
income to average daily
net assets 4.73% 4.14%+ 5.04% 4.20%+ 4.76% 4.07%+
CLASSIC MICHIGAN FUND
-----------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994*
------------- --------------
<S> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.220 $ 10.000
------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.419 $ 0.261
Net realized and
unrealized gain (loss)
on investments 0.063 (0.733)
------- --------
Total income (loss)
from operations $ 0.482 $ (0.472)
------- --------
LESS DISTRIBUTIONS:
From net investment
income $(0.419) $ (0.261)
In excess of net
investment income (0.023) (0.047)
------- --------
Total distributions $(0.442) $ (0.308)
------- --------
NET ASSET VALUE,
end of year $ 9.260 $ 9.220
======= ========
TOTAL RETURN (2) 5.52% (4.88)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of period
(000 omitted) $ 4,475 $ 6,366
Ratio of net expenses
to average daily
net assets (1) 1.69% 1.69%+
Ratio of net investment
income to average daily
net assets 4.70% 4.18%+
** For the year ended July 31, 1995 and for the period from the start of
business, December 13, 1993, December 10, 1993, December 9, 1993 and December
7, 1993, respectively, to July 31, 1994 the operating expenses of the Funds
and the Portfolios may reflect a reduction of expenses by the Administrator
or Investment Adviser. Had such actions not been taken, net investment income
per share and ratios would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
CLASSIC ARIZONA FUND CLASSIC COLORADO FUND CLASSIC CONNECTICUT FUND
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
PER SHARE $ 0.376 $ 0.181 $ 0.368 $ 0.146 $ 0.379 $ 0.141
======= ======== ======= ======== ======= ========
RATIOS (As a percentage
of average daily
net assets):
Expenses(1) 2.21% 2.93%+ 2.18% 3.18%+ 2.05% 3.37%+
Net investment
income 4.12% 2.96%+ 4.12% 2.40%+ 4.19% 2.34%+
CLASSIC MICHIGAN FUND
-----------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994*
------------- --------------
<S> <C> <C>
NET INVESTMENT INCOME
PER SHARE $ 0.398 $ 0.235
======= ========
RATIOS (As a percentage
of average daily
net assets):
Expenses(1) 1.92% 2.11%+
Net investment
income 4.47% 3.76%+
+ Annualized.
(1) Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is computed on a nonannualized basis.
++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the
timing of sales of Fund shares and the amount of the per share realized and unrealized gains and losses at such time.
* For the Classic Arizona, Classic Colorado, Classic Connecticut and Classic Michigan Funds, the Financial Highlights
are for the period from the start of business, December 13, 1993, December 10, 1993, December 9, 1993, and December
7, 1993, respectively, to July 31, 1994.
</TABLE>
See notes to financial statements
21
<PAGE>
FINANCIAL STATEMENTS (Continued)
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC MINNESOTA FUND CLASSIC NEW JERSEY FUND CLASSIC PENNSYLVANIA FUND
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.370 $ 10.000 $ 9.300 $ 10.000 $ 9.180 $ 10.000
------- -------- ------- -------- ------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.440 $ 0.267 $ 0.452 $ 0.276 $ 0.447 $ 0.279
Net realized and
unrealized gain (loss)
on investments (0.048)++ (0.582) 0.004++ (0.640) (0.020) (0.766)
------- -------- ------- -------- ------- --------
Total income (loss)
from operations $ 0.392 $ (0.315) $ 0.456 $ (0.364) $ 0.467 $ (0.487)
------- -------- ------- -------- ------- --------
LESS DISTRIBUTIONS:
From net investment
income $(0.440) $ (0.267) $(0.452) $ (0.276) $(0.447) $ (0.279)
In excess of net
investment income (0.022) (0.048) (0.024) (0.060) (0.020) (0.054)
------- -------- ------- -------- ------- --------
Total distributions $(0.462) $ (0.315) $(0.476) $ (0.336) $(0.467) $ (0.333)
------- -------- ------- -------- ------- --------
NET ASSET VALUE,
end of year $ 9.300 $ 9.370 $ 9.280 $ 9.300 $ 9.180 $ 9.180
======= ======== ======= ======== ======= ========
TOTAL RETURN (2) 4.45% (3.29)% 5.20% (3.82)% 5.40% (5.04)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of period
(000 omitted) $ 3,688 $ 4,952 $ 3,307 $ 3,717 $ 2,621 $ 4,702
Ratio of net expenses
to average daily
net assets (1) 1.47% 1.51%+ 1.47% 1.64%+ 1.48% 1.66%+
Ratio of net investment
income to average daily
net assets 4.84% 4.33%+ 5.01% 4.30%+ 5.10% 4.43%+
CLASSIC TEXAS FUND
-----------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994*
------------- --------------
<S> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.230 $ 10.000
------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.455 $ 0.267
Net realized and
unrealized gain (loss)
on investments (0.008) (0.709)
------- --------
Total income (loss)
from operations $ 0.447 $ (0.442)
------- --------
LESS DISTRIBUTIONS:
From net investment
income $(0.455) $ (0.267)
In excess of net
investment income (0.032) (0.061)
------- --------
Total distributions $(0.487) $ (0.328)
------- --------
NET ASSET VALUE,
end of year $ 9.190 $ 9.230
======= ========
TOTAL RETURN (2) 5.16% (4.61)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of period
(000 omitted) $ 469 $ 1,147
Ratio of net expenses
to average daily
net assets (1) 1.01% 1.08%+
Ratio of net investment
income to average daily
net assets 5.25% 4.53%+
** For the year ended July 31, 1995 and for the period from the start of
business, December 9, 1993, December 3, 1993, December 3, 1993 and December
8, 1993, respectively, to July 31, 1994 the operating expenses of the Funds
and the Portfolios may reflect a reduction of expenses by the Administrator
or Investment Adviser. Had such actions not been taken, net investment income
per share and ratios would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
CLASSIC MINNESOTA FUND CLASSIC NEW JERSEY FUND CLASSIC PENNSYLVANIA FUND
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994* JULY 31, 1995 JULY 31, 1994*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
PER SHARE $ 0.394 $ 0.209 $ 0.396 $ 0.184 $ 0.395 $ 0.235
======= ======== ======= ======== ======= ========
RATIOS (As a percentage
of average daily
net assets):
Expenses(1) 1.98% 2.45%+ 2.09% 3.08%+ 2.07% 2.36%+
Net investment
income 4.33% 3.38%+ 4.39% 2.86%+ 4.51% 3.73%+
CLASSIC TEXAS FUND
-----------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994*
------------- --------------
<S> <C> <C>
NET INVESTMENT INCOME
PER SHARE $ 0.254 $ 0.024
======= ========
RATIOS (As a percentage
of average daily
net assets):
Expenses(1) 3.33% 5.20%+
Net investment
income 2.93% 0.41%+
+ Annualized.
(1) Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is computed on a nonannualized basis.
++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the
timing of sales of Fund shares and the amount of the per share realized and unrealized gains and losses at such time.
* For the Classic Minnesota, Classic New Jersey, Classic Pennsylvania and Classic Texas Funds, the Financial Highlights
are for the period from the start of business, December 9, 1993, December 3, 1993, December 3, 1993, and December 8,
1993, respectively, to July 31, 1994.
</TABLE>
See notes to financial statements
22
<PAGE>
-------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Municipals Trust (the Trust) is an entity of the type commonly known
as a Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end investment management company. The Trust
presently consists of sixty-three Funds, eight of which are included in these
financial statements. They include EV Classic Arizona Tax Free Fund ("Classic
Arizona Fund"), EV Classic Colorado Tax Free Fund ("Classic Colorado Fund"), EV
Classic Connecticut Tax Free Fund ("Classic Connecticut Fund"), EV Classic
Michigan Tax Free Fund ("Classic Michigan Fund"), EV Classic Minnesota Tax Free
Fund ("Classic Minnesota Fund"), EV Classic New Jersey Tax Free Fund ("Classic
New Jersey Fund"), EV Classic Pennsylvania Tax Free Fund ("Classic Pennsylvania
Fund"), and EV Classic Texas Tax Free Fund ("Classic Texas Fund"). Each Fund
invests all of its investable assets in interests in a separate corresponding
open-end management investment company (a "Portfolio"), a New York Trust, having
the same investment objective as its corresponding Fund. The Classic Arizona
Fund invests its assets in the Arizona Tax Free Portfolio, the Classic Colorado
Fund invests its assets in the Colorado Tax Free Portfolio, the Classic
Connecticut Fund invests its assets in the Connecticut Tax Free Portfolio, the
Classic Michigan Fund invests its assets in the Michigan Tax Free Portfolio, the
Classic Minnesota Fund invests its assets in the Minnesota Tax Free Portfolio,
the Classic New Jersey Fund invests its assets in the New Jersey Tax Free
Portfolio, the Classic Pennsylvania Fund invests its assets in the Pennsylvania
Tax Free Portfolio, and the Classic Texas Fund invests its assets in the Texas
Tax Free Portfolio. The value of each Fund's investment in its corresponding
Portfolio reflects the Fund's proportionate interest in the net assets of that
Portfolio (1.7%, 4.2%, 2.3%, 2.4%, 4.4%, 0.8%, 0.5%, and 1.6% at July 31, 1995
for the Classic Arizona Fund, Classic Colorado Fund, Classic Connecticut Fund,
Classic Michigan Fund, Classic Minnesota Fund, Classic New Jersey Fund, Classic
Pennsylvania Fund and Classic Texas Fund, respectively). The performance of each
Fund is directly affected by the performance of its corresponding Portfolio. The
financial statements of each Portfolio, including the portfolio of investments,
are included elsewhere in this report and should be read in conjunction with
each Fund's financial statements. The policies are in conformity with generally
accepted accounting principles.
A. INVESTMENT VALUATION--Valuation of securities by the Portfolios is discussed
in Note 1 of the Portfolios' Notes to Financial Statements which are included
elsewhere in this report.
B. INCOME--Each Fund's net investment income consists of the Fund's pro rata
share of the net investment income of its corresponding Portfolio, less all
actual and accrued expenses of each Fund determined in accordance with generally
accepted accounting principles.
C. FEDERAL TAXES--Each Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable and tax-exempt income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is necessary. At July 31, 1995, the Funds, for
federal income tax purposes, had capital loss carryovers which will reduce
taxable income arising from future net realized gain on investments, if any, to
the extent permitted by the Internal Revenue Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be necessary
to relieve the Funds of any liability for federal income or excise tax.
The amounts and expiration dates of the capital loss carryovers are as follows:
<TABLE>
<CAPTION>
FUND AMOUNT EXPIRES
<S> <C> <C>
- -----------------------------------------------------------
Classic Arizona Fund $ 6,850 July 31, 2003
22,323 July 31, 2002
Classic Colorado Fund 10,896 July 31, 2003
18,440 July 31, 2002
Classic Connecticut Fund 4,986 July 31, 2002
Classic Michigan Fund 36,368 July 31, 2003
83,846 July 31, 2002
Classic Minnesota Fund 40,089 July 31, 2003
22,023 July 31, 2002
Classic New Jersey Fund 499 July 31, 2003
15,446 July 31, 2002
Classic Pennsylvania Fund 17,477 July 31, 2003
66,690 July 31, 2002
Classic Texas Fund 11,202 July 31, 2002
</TABLE>
Additionally, at July 31, 1995, net capital losses of $109,209, $116,023,
$101,664, $168,973, $236,478, $151,916, $182,207, and $42,625, for the Classic
Arizona Fund, Classic Colorado Fund, Classic Connecticut Fund, Classic Michigan
Fund, Classic Minnesota Fund, Classic New Jersey Fund, Classic Pennsylvania
Fund, and Classic Texas Fund, respectively, attributable to security
transactions incurred after October 31, 1994, are treated as arising on the
first day of the Fund's next taxable year.
Dividends paid by each Fund from net interest on tax-exempt municipal bonds
allocated from its corresponding Portfolio are not includable by shareholders as
gross income for federal income tax purposes because each Fund and Portfolio
intend to meet certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the Funds to pay
exempt-interest dividends. The portion of such interest, if any, earned on
private activity bonds issued after August 7, 1986, may be considered a tax
preference item to shareholders.
D. DEFERRED ORGANIZATION EXPENSES--Costs incurred by a Fund in connection with
its organization, including registration costs, are being amortized on the
straight-line basis over five years beginning on the date each Fund commenced
operations.
23
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
E. DISTRIBUTION COSTS--For book purposes, commissions paid on the sale of Fund
shares and other distribution costs are charged to operations. As a result of a
recent Internal Revenue Service ruling, the Funds changed their tax accounting
for commissions paid from charging the expenses to paid-in capital to charging
the expenses to operations. The change had no effect on either the Funds'
current yield or total return (Notes 2 and 5).
F. OTHER--Investment transactions are accounted for on a trade date basis.
- --------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of a Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. In addition, each Fund declares each day an amount equal to
the excess of tax basis net income over book basis net income, which amount is
reported for financial statement purposes as a distribution in excess of net
investment income. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of a Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Funds
distinguish between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary over distributions for financial statements
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital. During
the year ended July 31, 1995, $15,971, $11,553, $17,856, $28,699, $25,207,
$18,312, $18,137 and $4,178 were reclassified from distributions in excess of
net investment income to paid in capital, due to permanent differences between
book and tax accounting for distribution costs for the Classic Arizona Fund,
Classic Colorado Fund, Classic Connecticut Fund, Classic Michigan Fund, Classic
Minnesota Fund, Classic New Jersey Fund, Classic Pennsylvania Fund and Classic
Texas Fund, respectively. Net investment income, net realized gains and net
assets were not affected by these reclassifications.
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Funds' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
CLASSIC ARIZONA FUND CLASSIC COLORADO FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994* 1995 1994*
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales 284,699 450,458 131,906 344,445
Issued to shareholders electing
to receive payments of distributions in Fund
shares 11,797 4,933 9,251 3,407
Redemptions (294,142) (198,453) (182,871) (92,626)
--------- -------- -------- -------
Net increase (decrease) 2,354 256,938 (41,714) 255,226
========= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CONNECTICUT FUND CLASSIC MICHIGAN FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994* 1995 1994*
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales 233,930 394,622 91,974 775,309
Issued to shareholders electing
to receive payments of distributions in Fund
shares 17,289 3,916 24,410 13,136
Redemptions (95,969) (51,014) (323,457) (98,104)
------- ------- -------- -------
Net increase (decrease) 155,250 347,524 (207,073) 690,341
======= ======= ======== =======
</TABLE>
* For the period from the start of business December 13, December 10, December
9, and December 7, 1993 for Classic Arizona Fund, Classic Colorado Fund,
Classic Connecticut Fund and Classic Michigan Fund, respectively, to July 31,
1994.
24
<PAGE>
-------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC MINNESOTA FUND CLASSIC NEW JERSEY FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994* 1995 1994*
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales 154,778 602,377 71,024 483,105
Issued to shareholders electing
to receive payments of distributions in Fund
shares 8,048 5,274 12,393 5,341
Redemptions (294,858) (79,076) (126,356) (88,920)
-------- ------- -------- -------
Net increase (decrease) (132,032) 528,575 (42,939) 399,526
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CLASSIC PENNSYLVANIA FUND CLASSIC TEXAS FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994* 1995 1994*
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sales 76,889 714,451 12,839 137,888
Issued to shareholders electing
to receive payments of distributions in Fund
shares 14,424 11,673 2,544 1,087
Redemptions (318,020) (213,994) (88,591) (14,765)
-------- -------- ------- -------
Net increase (decrease) (226,707) 512,130 (73,208) 124,210
======== ======== ======= =======
</TABLE>
* For the period from the start of business December 9, December 3, December 3,
and December 8, 1993 for Classic Minnesota Fund, Classic New Jersey Fund,
Classic Pennsylvania Fund and Classic Texas Fund, respectively, to July 31,
1994.
- --------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the Administrator of each Fund, but
receives no compensation. The Portfolios have engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 2 of the Portfolios' Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Funds, $18,453,
$17,169, $22,099, $12,579, $24,179, $22,188, $19,615 and $15,081 of expenses
related to the operation of the Classic Arizona Fund, Classic Colorado Fund,
Classic Connecticut Fund, Classic Michigan Fund, Classic Minnesota Fund, Classic
New Jersey Fund, Classic Pennsylvania Fund and Classic Texas Fund, respectively,
were allocated to EVM. Except as to Trustees of the Funds and the Portfolios who
are not members of EVM's or BMR's organization, officers and Trustees receive
remuneration for their services to each Fund out of such investment adviser fee.
Investors Bank & Trust Company (IBT), an affiliate of EVM, serves as custodian
to the Funds and the Portfolios. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based on
the average cash balances the Funds or the Portfolios maintain with IBT. Certain
of the officers and Trustees of the Funds and Portfolios are officers and
directors/trustees of the above organizations (Note 5).
- --------------------------------------------------------------------------------
(5) DISTRIBUTION PLAN
Each Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1
under the Investment Company Act of 1940. Effective January 30, 1995 the
Trustees of the Funds adopted an Amended Distribution Plan. The Plans require
the Funds to pay the principal underwriter, Eaton Vance Distributors, Inc.
(EVD), amounts equal to 1/365 of 0.75% of each Funds daily net assets, for
providing ongoing distribution services and facilities to the respective Fund. A
Fund will automatically discontinue payments to EVD during any period in which
there are no outstanding Uncovered Distribution Charges, which are equivalent to
the sum of (i) 6.25% of the aggregate amount received by the Fund for shares
sold plus (ii) distribution fees calculated by applying the rate of 1% over the
prevailing prime rate to the outstanding balance of Uncovered Distribution
Charges of EVD, reduced by the aggregate amount of contingent deferred sales
charges (see Note 6) and amounts theretofore paid to EVD. The amount payable to
EVD with respect to each day is accrued on such day as a liability of each Fund
and, accordingly, reduces the Fund's net assets. For the year ended July 31,
1995, Classic Arizona Fund, Classic Colorado Fund, Classic Connecticut Fund,
Classic Michigan Fund, Classic Minnesota Fund, Classic New Jersey Fund, Classic
Pennsylvania Fund and Classic Texas Fund, paid or accrued $22,532, $16,716,
$28,877, $40,685, $35,916, $26,799, $24,839 and $5,435, respectively, to or
payable to EVD representing 0.75% (annualized) of average daily net assets. At
July 31, 1995, the amount of Uncovered Distribution Charges of EVD calculated
under the Plans for Classic Arizona Fund, Classic Colorado Fund, Classic
Connecticut Fund, Classic Michigan Fund, Classic Minnesota Fund, Classic New
Jersey Fund,
25
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
Classic Pennsylvania Fund, and Classic Texas Fund were approximately $421,000,
$286,000, $346,000, $527,000, $419,000, $295,000, $474,000 and $81,000,
respectively.
In addition, the Plans permit the Funds to make monthly payments of service fees
to the Principal Underwriter, in amounts not expected to exceed 0.25% of each
Fund's average daily net assets for any fiscal year. The Trustees have initially
implemented the Plans by authorizing the Funds to make monthly service fee
payments to the Principal Underwriter in amounts not expected to exceed 0.20% of
each Fund's average daily net assets for any fiscal year. For the year ended
July 31, 1995, Classic Arizona Fund, Classic Colorado Fund, Classic Connecticut
Fund, Classic Michigan Fund, Classic Minnesota Fund, Classic New Jersey Fund,
Classic Pennsylvania Fund and Classic Texas Fund paid or accrued service fees to
or payable to EVD in the amount of $6,008, $4,458, $7,700, $10,781, $9,577,
$7,147, $6,623 and $1,429, respectively. Pursuant to the Amended Distribution
Plan, on sales made prior to January 30, 1995, EVD makes monthly service fee
payments to Authorized Firms in amounts anticipated to be equivalent to 0.20%,
annualized, of the assets maintained in each Fund by their customers. On sales
of shares made on January 30, 1995 and thereafter, EVD currently expects to pay
to an Authorized Firm a service fee at the time of sale equal to 0.20% of the
purchase price of the shares sold by such authorized Firm and monthly payments
of service fees in amounts not expected to exceed 0.20% per annum of the Funds'
average daily net assets based on the value of Fund shares sold by such
authorized Firm and remaining outstanding for at least one year. During the
first year after a purchase of Fund shares, EVD will retain the service fee as
reimbursement for the service fee payment made to the Authorized Firm at the
time of sale. Service fee payments are made for personal services and/or
maintenance of shareholder accounts. Service fees paid to EVD and Authorized
Firms are separate and distinct from the sales commissions and distribution fees
payable by a Fund to EVD, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges of
EVD.
Certain of the officers and Trustees of the Funds are officers or directors of
EVD.
- --------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGES
For shares purchased on or after January 30, 1995, a contingent deferred sales
charge (CDSC) of 1% is imposed on any redemption of Fund shares made within one
year of purchase. Generally, the CDSC is based upon the lower of the net asset
value at date of redemption or date of purchase. No charge is levied on shares
acquired by reinvestment of dividends or capital gains distributions. No CDSC is
levied on shares which have been sold to EVD or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Funds'
Distribution Plans. CDSC received when no Uncovered Distribution Charges exist
will be credited to the Funds. For the year ended July 31, 1995, EVD received
approximately $600, $200, $50 and $400 of CDSC paid by shareholders of Classic
Arizona Fund, Classic Colorado Fund, Classic Michigan Fund, and Classic
Pennsylvania Fund, respectively.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding Portfolio
for the year ended July 31, 1995 were as follows:
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ARIZONA COLORADO CONNECTICUT MICHIGAN
FUND FUND FUND FUND
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Increases $2,598,994 $1,244,281 $2,158,035 $1,036,188
Decreases 3,513,354 1,716,187 963,488 3,249,657
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
FUND FUND FUND FUND
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Increases $1,717,391 $ 755,436 $ 741,499 $ 153,807
Decreases 3,007,384 1,321,503 3,002,750 845,661
</TABLE>
26
<PAGE>
-------
Independent Auditor's Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF EATON VANCE MUNICIPALS TRUST:
We have audited the accompanying statements of assets and liabilities of EV
Classic Arizona Tax Free Fund, EV Classic Colorado Tax Free Fund, EV Classic
Connecticut Tax Free Fund, EV Classic Michigan Tax Free Fund, EV Classic
Minnesota Tax Free Fund, EV Classic New Jersey Tax Free Fund, EV Classic
Pennsylvania Tax Free Fund, and EV Classic Texas Tax Free Fund (the Funds)
(certain of the series of Eaton Vance Municipals Trust) as of July 31, 1995, the
related statements of operations for the year then ended, and the statements of
changes in net assets and the financial highlights for the year ended July 31,
1995 and the period from the start of business to July 31, 1994. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned funds of Eaton Vance Municipals Trust at July 31, 1995, the
results of their operations, the changes in their net assets and their financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
AUGUST 25, 1995
27
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
Arizona Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 4.8%
A1 AA $1,000 Arizona Board of Regents,
Arizona State University,
5.90%, 7/01/09 $ 1,015,710
NR AAA 1,000 City of Glendale,
Thunderbird Graduate
School, CLEE, 7.125%,
7/01/20 1,099,650
A1 AA 1,250 Arizona Board of Regents,
University of Arizona,
6.25%, 6/01/11 1,283,100
NR NR 2,000 Arizona Educational Loan
Marketing Corporation,
(AMT) 6.30%, 12/01/08 1,921,460
A NR 1,500 Student Loan Acquisition
Authority of Arizona,
(AMT) 7.625%, 5/01/10 1,630,230
------------
$ 6,950,150
------------
ESCROWED - 6.2%
Aaa AA $2,500 Arizona Transportation
Board Highway, 6.50%,
7/01/11 $ 2,797,850
Aaa AAA 7,500 Maricopa County, Single
Family Mortgage, 0%,
2/01/16 2,145,825
NR AA 2,500 City of Phoenix, Street &
Highway User, 6.25%,
7/01/11 2,696,950
Baa1 AAA 630 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 705,039
NR NR 500 City of Scottsdale,
Westminster Village,
Multifamily Housing,
10.00%, 6/01/17 565,310
------------
$ 8,910,974
------------
GENERAL OBLIGATION - 7.9%
Aa AA+ $1,500 City of Phoenix, 6.375%,
7/01/13 $ 1,556,085
Aa AA+ 1,000 City of Phoenix, 5.55%,
7/01/09 1,001,860
Aa AA+ 3,000 City of Phoenix, 5.10%,
7/01/13 2,774,070
Aa1 AA+ 1,000 City of Scottsdale, 5.50%,
7/01/12 957,500
NR A 2,000 City of Phoenix, Tatum
Ranch Community, 6.875%,
7/01/16 2,106,600
Aa AA+ 1,000 City of Tempe, 5.25%,
7/01/15 925,490
Aa AA 1,300 Scottsdale Unified School
District No. 48 of
Maricopa County, 4.60%,
7/01/11 1,146,665
Baa1 A 1,000 Commonwealth of Puerto
Rico, 5.75%, 7/01/16 953,220
------------
$ 11,421,490
------------
HOSPITALS - 3.2%
NR BBB $1,130 Arizona Health Facilities
Authority, Phoenix
Memorial Hospital, 8.125%,
6/01/12 $ 1,202,376
NR BBB 1,250 Arizona Health Facilities
Authority, Phoenix
Memorial Hospital, 8.20%,
6/01/21 (2) 1,331,413
Baa BB+ 1,000 Maricopa County, Sun
Health Corporation,
8.125%, 4/01/12 1,065,980
<PAGE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 915 City of Winslow, Winslow
Memorial Hospital Project,
9.50%, 6/01/22 1,003,535
------------
$ 4,603,304
------------
HOUSING - 5.7%
NR A $2,000 Maricopa County, Laguna
Point Apartments,
Multifamily Housing,
6.75%, 7/01/09 $ 1,990,440
NR AAA 2,775 City of Phoenix, Chris
Ridge Village Project, FHA
Insured Mortgage Loan,
6.80%, 11/01/25 2,812,546
NR AA 1,000 City of Phoenix, Woodstone
and Silver Springs
Apartments, Multifamily
Housing, (Asset Guaranty),
6.25%, 4/01/23 989,500
Aaa NR 1,500 City of Phoenix, Meadow
Glen Apartments,
Multifamily Housing, (GNMA
Collateralized) 5.80%,
8/20/28 1,367,325
NR AAA 1,000 City of Tempe, Multifamily
Housing, Quadrangle
Village Apartments, FHA
Insured Mortgage Loan,
6.25%, 6/01/26 982,450
------------
$ 8,142,261
------------
INDUSTRIAL DEVELOPMENT
REVENUE / IDB - 3.7%
A1 NR $1,000 City of Casa Grande,
Pollution Control,
Frito-Lay Inc., 6.60%,
12/01/10 $ 1,059,800
A2 A 4,500 Greenlee County, Pollution
Control, Phelps Dodge
Corporation, 5.45%,
6/01/09 4,318,155
------------
$ 5,377,955
------------
INSURED GENERAL OBLIGATION - 8.6%
Aaa AAA $1,000 Peoria Unified School
District No. 11 of
Maricopa County, (MBIA)
6.40%, 7/01/10 $ 1,051,570
Aaa AAA 1,300 Alhambra Elementary School
District No. 68 of
Maricopa County, (AMBAC)
5.50%, 7/01/07 1,322,776
Aaa AAA 1,000 Alhambra Elementary School
District No. 68 of
Maricopa County, (AMBAC)
5.625%, 7/01/13 997,140
Aaa AAA 1,000 Alhambra Elementary School
District No. 68 of
Maricopa County, (AMBAC)
5.125%, 7/01/13 921,170
Aaa AAA 1,000 Paradise Valley Unified
School District No. 69 of
Maricopa County, (AMBAC),
5.00%, 7/01/09 929,690
</TABLE>
33
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL OBLIGATION -
(CONTINUED)
Aaa AAA 1,000 Chandler Unified School
District No. 80 of
Maricopa County, (FGIC)
6.40%, 7/01/10 1,047,450
Aaa AAA 1,000 Pima County, School
District No. 1, Tucson
Project, (FGIC) 5.40%,
7/01/13 949,340
Aaa AAA 1,750 Pima County, School
District No. 1, Tucson
Project, (FGIC) 5.875%,
7/01/14 1,742,965
Aaa AAA 1,000 Commonwealth of Puerto
Rico, (FSA) 7/01/20 (1) 963,790
Aaa AAA 1,500 Commonwealth of Puerto
Rico, (AMBAC) 7/01/15 (1) 1,492,485
Aaa AAA 1,000 Commonwealth of Puerto
Rico, (FSA) 7/01/22 (1) 1,003,110
------------
$ 12,421,486
------------
INSURED HOSPITALS - 13.1%
Aaa AAA $2,000 Maricopa County, Hospital
District No.1, (FGIC)
6.125%, 6/01/15 (2) $ 2,021,080
Aaa AAA 3,500 Maricopa County, Catholic
Healthcare West, (MBIA)
5.625%, 7/01/23 3,336,655
Aaa AAA 2,000 Maricopa County, Samaritan
Health, (MBIA) 7.00%,
12/01/16 2,280,640
Aaa AAA 2,000 Mohave County, Hospital
District No.1, Kingman
Regional Medical Center,
(FGIC) 6.50%, 6/01/15 2,084,440
Aaa AAA 1,500 Pima County, Tucson
Medical Center, (MBIA)
6.375%, 4/01/12 1,550,700
Aaa AAA 3,500 Pima County, Tucson
Medical Center, (MBIA)
5.00%, 4/01/15 3,098,795
Aaa AAA 1,000 Pima County, Carondelet
Health Care Corporation,
(MBIA) 5.25%, 7/01/11 938,350
Aaa AAA 1,000 Pima County, Carondelet
Health Care Corporation,
(MBIA) 5.25%, 7/01/12 930,980
Aaa AAA 2,000 University of Arizona
Medical Center
Corporation, (MBIA) 5.00%,
7/01/13 1,802,480
Aaa AAA 1,000 University of Arizona
Medical Center
Corporation, (MBIA) 5.00%,
7/01/21 869,300
------------
$ 18,913,420
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOUSING - 1.3%
Aaa AAA $1,975 City of Sierra Vista,
Mountain View Apartments,
FHA Insured Mortgage,
(MBIA) 5.75%, 1/01/24 $ 1,849,331
------------
INSURED UTILITIES - 5.9%
Aaa AAA $4,000 Navajo County, Pollution
Control, Arizona Public
Service Co., (AMBAC)
5.50%, 8/15/28 $ 3,687,000
Aaa AAA 3,500 Pima County, Irvington
Power Project, (FSA)
7.25%,
7/15/10 (2) 3,842,300
Aaa AAA 1,000 Arizona State Power
Authority, Hoover Uprating
Project, (MBIA) 5.25%,
10/01/17 909,770
------------
$ 8,439,070
------------
INSURED MISCELLANEOUS - 0.7%
Aaa AAA $1,000 Maricopa County Stadium
District, (MBIA) 5.50%,
7/01/13 $ 956,070
------------
INSURED SPECIAL TAX - 1.3%
Aaa AAA $1,750 City of Phoenix, Civic
Improvement Excise Tax,
(MBIA) 6.60%, 7/01/08 $ 1,895,793
------------
INSURED TRANSPORTATION - 0.7%
Aaa AAA $1,000 City of Tucson, Junior
Lien Street and Highway,
(MBIA) 5.50%, 7/01/12 $ 952,370
------------
INSURED WATER & SEWER - 1.4%
Aaa AAA $1,000 City of Chandler, Water
and Sewer, (FGIC) 6.25%,
7/01/13 $ 1,024,610
Aaa AAA 1,200 City of Phoenix, Civic
Improvement Wastewater
Systems, (MBIA) 5.00%,
7/01/18 1,058,340
------------
$ 2,082,950
------------
TRANSPORTATION - 6.7%
Aa AA $1,000 State of Arizona,
Transportation Board &
Highway, 5.00%, 7/01/10 $ 928,360
Aa AA 2,000 State of Arizona,
Transportation Board &
Highway, 5.10%, 7/01/11 1,851,780
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/01/20 881,340
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/01/21 879,370
</TABLE>
29
<PAGE>
-------
ARIZONA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - (CONTINUED)
A1 A+ 2,250 City of Tucson, Arizona,
Senior Lien Street and
Highway, 5.50%, 7/01/09 2,173,523
NR BBB 3,000 Guam Airport Authority,
(AMT) 6.70%, 10/01/23 2,999,610
------------
$ 9,713,983
------------
UTILITIES - 20.3%
Baa2 BBB $1,500 Coconino County, Pollution
Control, Nevada Power Co.,
7.125%, 10/01/06 $ 1,502,730
Ba2 BB 2,500 Maricopa County, Pollution
Control, Public Service
Company of New Mexico,
Palo Verde Project,
6.375%, 8/15/23 2,376,600
Baa1 BBB 5,300 Navajo County, Pollution
Control, Arizona Public
Service Co., 5.875%,
8/15/28 4,932,975
NR AAA 1,000 Mohave County, Citizens
Utilities Company Project,
(AMT) 5.80%, 11/15/28 958,740
A A+ 1,000 Puerto Rico Telephone
Authority, 1/01/20 (1) 1,009,540
A1 AA- 1,000 Central Arizona Water
Conservation District,
Central Arizona Project,
5.50%, 11/01/09 989,209
NR BBB 1,200 Guam Power Authority,
6.30%, 10/01/12 1,193,652
NR BBB 1,250 Guam Power Authority,
6.30%, 10/01/22 1,218,162
Baa1 A- 1,500 Puerto Rico Electric Power
Authority, 7.00%, 7/01/07 1,603,410
Baa1 A- 5,000 Puerto Rico Electric Power
Authority, 5.00%, 7/01/12 4,429,250
Baa1 A- 370 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 401,210
Aa AA 1,750 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 5.50%, 1/01/28 1,600,008
Aa AA 3,500 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 5.50%, 1/01/25 3,227,735
Aa AA 1,000 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 6.25%, 1/01/27 1,012,300
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA 1,000 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 5.25%, 1/01/13 917,570
Aa AA 2,000 Salt River Project
Agricultural Improvement
and Power District, Salt
River Project Electric
System, 5.25%, 1/01/19 1,796,320
------------
$ 29,169,411
------------
WATER & SEWER - 8.5%
Aa AA+ $2,000 State of Arizona,
Wastewater Management
Authority, 6.80%, 7/01/11
(2) $ 2,163,140
A1 A 1,100 City of Phoenix, Water
System, 5.00%, 7/01/18 966,405
A1 A 5,000 City of Phoenix, Water
System, 4.75%, 7/01/23 4,140,550
A1 AA- 1,000 City of Phoenix, Water
System, 5.40%, 7/01/14 942,330
A1 A+ 1,000 City of Tucson, Water
System, 6.50%, 7/01/16 1,046,420
A1 A+ 1,000 City of Tucson, Water
System, 5.50%, 7/01/08 1,019,410
A1 A+ 1,000 City of Tucson, Water
System, 5.50%, 7/01/09 989,410
A1 A+ 1,000 City of Tucson, Water
System, 5.50%, 7/01/10 979,050
------------
$ 12,246,715
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $140,218,111) $144,046,733
----------
----------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Arizona
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 36.6% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 0.9% to
16.3% of total investments.
See notes to financial statements
30
<PAGE>
-------
Colorado Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 2.0%
A1 A+ $1,000 City of Colorado Springs,
Colorado College Project,
5.125%, 6/01/16 $ 902,140
-----------
ESCROWED - 1.6%
Aaa AAA $4,000 Colorado Health Facilities
Authority, Liberty Heights
Project, (FSA) 0%, 7/15/24 $ 538,160
NR AAA 150 Puerto Rico Highway and
Transportation Authority,
6.50%, 7/01/22 169,296
-----------
$ 707,456
-----------
GENERAL OBLIGATION - 9.4%
A NR $ 500 City of Aspen, 5.625%,
4/15/14 $ 467,330
Aa AA 1,000 City and County of Denver,
5.10%, 9/01/09 938,710
Aa AA 1,000 Boulder and Gilpin
Counties, Boulder Valley
School District, 6.30%,
12/01/13 1,032,600
NR A 750 Larimer, Weld & Boulder
Counties, Thompson School
District, 6.05%, 12/15/08 770,422
Baa1 A 1,000 Commonwealth of Puerto
Rico, 5.75%, 7/01/15 959,900
NR NR 100 Virgin Islands Public
Finance Authority, 7.25%,
10/01/18 103,155
-----------
$ 4,272,117
-----------
HOSPITALS - 10.4%
Baa1 BBB+ $1,250 Boulder County, Longmont
United Hospital, 5.875%,
12/01/20 $ 1,160,750
Baa BBB 2,050 Colorado Health Facilities
Authority, Rocky Mountain
Adventist Healthcare,
6.625%, 2/01/13 1,999,304
A NR 250 Colorado Health Facilities
Authority, Craig Hospital,
5.375%, 12/01/13 228,340
A NR 500 Colorado Health Facilities
Authority, Craig Hospital,
5.50%, 12/01/21 449,450
Baa1 BBB+ 250 Colorado Health Facilities
Authority, Swedish Medical
Center, 6.80%, 1/01/23 252,050
NR BBB- 650 Colorado Health Facilities
Authority, National Jewish
Center, 6.875%, 2/15/12 628,524
-----------
$ 4,718,418
-----------
HOUSING - 11.6%
NR NR $ 350 Lake Creek Affordable
Housing Corporation,
Multifamily Housing, 8.00%,
12/01/23 $ 352,786
NR AAA 1,000 City of Lakewood, Multi
Family Housing FHA Insured
Mortgage Loan, (AMT) 6.65%,
10/01/25 1,004,010
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa NR 1,975 Colorado Housing and
Finance Authority, Single
Family Access Program,
7.90%, 12/01/24 2,163,810
Aa NR 990 Colorado Housing and
Finance Authority, Single
Family Access Program,
8.00%, 12/01/24 (3) 1,093,682
Aa NR 600 Colorado Housing and
Finance Authority, Single
Family Housing, (AMT)
7.65%, 12/01/25 (2) 651,786
-----------
$ 5,266,074
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 3.4%
A2 NR $1,750 Puerto Rico Pollution
Control, American Home
Products Corporation,
5.10%, 12/01/18 $ 1,541,488
-----------
INSURED EDUCATION - 2.1%
Aaa AAA $1,000 Board of Trustees of the
State Colleges in Colorado,
Adams State College of
Colorado Project, (MBIA)
5.70%, 5/15/14 $ 976,260
-----------
INSURED GENERAL OBLIGATION - 11.4%
Aaa AAA $ 500 City and County of Denver
School District #1, (MBIA)
5.125%, 12/01/12 $ 455,225
Aaa AAA 1,000 Douglas and Elbert
Counties, Douglas County
School District, (MBIA)
6.40%, 12/15/11 1,050,140
Aaa AAA 1,750 Eagle, Garfield & Routt
Counties, School District
No. RE 50J, (FGIC) 6.30%,
12/01/12 1,827,648
Aaa AAA 1,000 Poudre School District R-1
of Larimer County, (MBIA)
6.50%, 12/15/11 1,060,090
Aaa AAA 750 Pueblo County School
District No.70, Pueblo
Rural, (AMBAC) 6.40%,
12/01/14 778,703
-----------
$ 5,171,806
-----------
INSURED HOSPITALS - 15.0%
Aaa AAA $2,500 Colorado Health Facilities
Authority, Sisters of
Charity, (MBIA) 5.25%,
5/15/14 $ 2,292,825
Aaa AAA 2,000 Colorado Health Facilities
Authority, Boulder
Community Hospital, (MBIA)
5.875%, 10/01/23 1,942,220
Aaa AAA 1,000 Colorado Springs Hospital,
(MBIA) 6.00%, 12/15/24 980,970
Aaa AAA 500 City and County of Denver,
Childrens Hospital, (FGIC)
6.00%, 10/01/15 504,490
</TABLE>
31
<PAGE>
-------
COLORADO TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS - (CONTINUED)
Aaa AAA 1,000 Pueblo County, Parkview
Episcopal Medical Center,
(MBIA) 7.00%, 9/01/09 1,076,760
-----------
$ 6,797,265
-----------
INSURED HOUSING - 2.3%
Aaa AAA $1,000 City of Thornton, SCA
Realty MFMR, (FSA) 7.10%,
1/01/30 (2) $ 1,025,850
-----------
INSURED UTILITIES - 0.7%
Aaa AAA $ 300 Puerto Rico Electric Power
Authority, (FSA) 7/01/03
(1) $ 328,491
-----------
INSURED SPECIAL TAX - 4.5%
Aaa AAA $2,000 City of Broomfield Sales
and User Tax, (AMBAC)
6.30%, 12/01/14 $ 2,061,200
-----------
INSURED TRANSPORTATION - 4.3%
Aaa AAA $2,100 City and County of Denver,
Colorado Airport System,
(MBIA) 5.60%, 11/15/20 $ 1,967,889
-----------
INSURED WATER & SEWER - 1.9%
Aaa AAA $1,000 Municipal Subdistrict,
Northern Colorado Water
Conservancy District,
(AMBAC) 5.00%, 12/01/17 $ 883,370
-----------
TRANSPORTATION - 11.1%
Baa3 BB $1,500 City and County of Denver,
Colorado Special Facilities
Airport System, United
Airlines, (AMT) 6.875%,
10/01/32 $ 1,501,320
Baa BB 500 City and County of Denver,
Colorado Airport System,
(AMT) 6.75%, 11/15/22 499,930
Baa BB 500 City and County of Denver,
Colorado Airport System,
(AMT) 7.50%, 11/15/23 534,105
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR BBB 100 Guam Airport Authority,
(AMT) 6.70%, 10/01/23 99,987
Baa1 A 2,750 Puerto Rico Highway and
Transportation Authority,
5.25%, 07/01/20 2,423,685
-----------
$ 5,059,027
-----------
UTILITIES - 8.3%
Aa AA $1,500 City of Colorado Springs,
Utilities System, 5.125%,
11/15/23 (4) $ 1,313,010
NR BBB 350 Guam Power Authority,
5.25%, 10/01/13 310,544
NR BBB 500 Guam Power Authority,
6.625%, 10/01/14 506,825
Aa A+ 1,750 Platte River Power
Authority, 5.50%, 6/01/18 1,627,465
-----------
$ 3,757,844
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $44,277,269) $45,436,695
---------
---------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) When-issued security.
(3) Security has been segregated to cover when-issued securities.
(4) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by Colorado
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 45.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.1% to 30.0% of total investments.
See notes to financial statements
32
<PAGE>
-------
Connecticut Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 10.8%
Baa BBB $1,000 Connecticut HEFA,
University of Hartford,
6.75%, 7/01/12 $ 975,350
Baa BBB 5,500 Connecticut HEFA,
University of Hartford,
6.80%, 7/01/22 5,302,660
NR BBB- 6,175 Connecticut HEFA,
Quinnipiac College, 6.00%,
7/01/23 5,497,294
NR BBB- 1,000 Connecticut HEFA, Sacred
Heart University, 6.80%,
7/01/12 1,045,400
NR A- 1,000 Connecticut HEFA, Sacred
Heart University, 5.80%,
7/01/23 842,940
NR A 1,125 Connecticut HEFA, Taft
School, 5.40%, 7/01/20 1,011,476
Aaa AAA 6,000 Connecticut HEFA, Yale
University, 5.929%,
6/10/30 5,929,680
------------
$ 20,604,800
------------
ESCROWED TO MATURITY - 2.4%
NR AA- $ 650 State of Connecticut
Government Obligations
Bonds, 6.875%, 7/15/10 $ 729,775
NR AAA 800 Connecticut Special Tax
Obligation Bonds,
Transportation
Infrastructure Purposes,
6.75%, 6/01/11 906,304
A1 AA- 645 Connecticut Special Tax
Obligation Bonds,
Transportation
Infrastructure Purposes,
6.50%, 7/01/09 706,475
A1 AA- 300 Amity RSD No. 5 Bonds,
6.80%, 6/15/08 326,166
Baa BBB 1,630 City of Stratford,
Government Obligations
Bonds, 7.30%, 3/01/12 1,869,561
------------
$ 4,538,281
------------
GENERAL OBLIGATION - 6.1%
Aa1 NR $ 350 City of Avon, 4.60%,
1/15/07 $ 327,159
Aa NR 525 Town of Guilford, 4.75%,
11/15/10 476,017
Aa NR 525 Town of Guilford, 4.75%,
11/15/11 471,466
A AA- 2,000 City of Bridgeport,
6.125%, 3/01/05 2,073,380
Aa AA- 1,750 State of Connecticut,
Capital Appreciation
Bonds, 0%, 11/01/09 781,515
AA AA- 1,000 State of Connecticut,
5.50%, 3/15/10 983,190
AA AA- 500 State of Connecticut,
5.50%, 3/15/11 491,235
Aa AA 1,270 City of Danbury, 4.50%,
2/01/14 1,062,634
Aa1 NR 650 City of Farmington, 5.70%,
1/15/11 657,306
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR BBB 500 Government of Guam, 5.40%,
11/15/18 431,735
Aa1 AA+ 925 City of Norwalk Maritime
Center Project Bonds,
6.05%, 2/01/09 952,574
Baa1 A 2,000 Puerto Rico PBA Bonds,
5.50%, 7/01/21 1,832,480
NR NR 1,000 Virgin Islands PFA Revenue
Bonds, 7.25%, 10/01/18 1,031,550
------------
$ 11,572,241
------------
HEALTH CARE (NON-HOSPITAL) - 12.5%
A1 AA- $ 600 Connecticut HEFA, Nursing
Home Program NHP (Noble
Horizons), 6.00%, 11/01/22 $ 586,554
A1 AA- 1,000 Connecticut HEFA, NHP
(Jewish Home-Fairfield),
6.25%, 11/01/20 1,008,720
A1 AA- 655 Connecticut HEFA, NHP (St.
Camillus), 6.25%, 11/01/18 661,766
A1 AA- 3,250 Connecticut HEFA, NHP (St.
Joseph's Manor) 6.25%,
11/01/16 3,283,573
A1 AA- 1,365 Connecticut HEFA, NHP
(Sharon Healthcare) 6.25%,
11/01/14 1,385,762
Aa3 NR 9,000 Connecticut Development
Authority Health Care
Bonds (Duncaster), 6.75%,
9/01/15 9,301,230
A1 AA- 720 Connecticut HEFA, NHP
(Highland View), 7.00%,
11/01/07 787,975
A1 AA- 335 Connecticut HEFA, NHP
(Wadsworth Glen), 7.00%,
11/01/07 366,627
A1 AA- 2,000 Connecticut HEFA, NHP
(Wadsworth Glen), 7.50%,
11/01/16 2,210,800
A1 AA- 3,000 Connecticut HEFA, NHP
(Windsor), 7.125%,
11/01/14 3,254,820
NR A- 1,000 Puerto Rico I. M. E. (Dr.
Pila Hospital), (FHA)
7.85%, 8/01/28 1,078,190
------------
$ 23,926,017
------------
HOSPITALS - 6.0%
NR A- $3,770 Connecticut HEFA, William
W. Backus Hospital,
6.375%, 7/01/22 $ 3,748,096
Baa1 NR 9,150 Connecticut HEFA, Griffin
Hospital, 5.75%, 7/01/23 7,814,009
------------
$ 11,562,105
------------
HOUSING - 8.2%
Aa AA $ 100 Connecticut HFA Mortgage
Revenue Bonds (MRB),
7.40%, 11/15/99 $ 102,965
</TABLE>
33
<PAGE>
-------
CONNECTICUT TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aa AA 1,400 Connecticut HFA, MRB,
7.20%, 11/15/01 1,473,556
Aa AA 200 Connecticut HFA, MRB,
7.00%, 11/15/09 207,336
Aa AA 6,200 Connecticut HFA, MRB,
6.70%, 11/15/12 6,336,524
Aa AA 250 Connecticut HFA, MRB,
6.55%, 11/15/13 252,910
Aa AA 1,000 Connecticut HFA, MRB,
5.85%, 11/15/16 955,420
Aa AA 120 Connecticut HFA, MRB,
7.625%, 11/15/17 123,988
Aa AA 1,700 Connecticut HFA, MRB,
6.35%, 5/15/17 1,674,177
Aa AA 2,500 Connecticut HFA, MRB,
6.60%, 11/15/23 2,511,700
Aa AA 2,000 Connecticut HFA, MRB,
6.75%, 11/15/23 2,030,000
------------
$ 15,668,576
------------
INDUSTRIAL DEVELOPMENT/POLLUTION
CONTROL REVENUES - 3.0%
Aaa AAA $1,000 Connecticut Development
Authority (Pfizer Inc.),
6.55%, 2/15/13 $ 1,071,700
Aa AA- 2,000 Connecticut Development
Authority (Economic
Development Projects),
Revenue Bonds, 6.00%,
11/15/08 2,066,960
A1 A+ 2,000 Connecticut Development
Authority (New England
Power Company Project),
7.25%, 10/15/15 2,142,580
Baa1 A 500 Puerto Rico Port Authority
(American Airlines),
6.30%, 6/01/23 485,275
------------
$ 5,766,515
------------
INSURED AIRPORTS - 4.9%
Aaa AAA $8,200 State of Connecticut
Airport Revenue Bonds,
Bradley International
Airport, (FGIC), 7.65%,
10/01/12 $ 9,315,364
------------
INSURED COLLEGE AND UNIVERSITY - 3.9%
Aaa AAA $ 725 Connecticut HEFA,
Fairfield University
(MBIA), 5.00%, 7/01/18 $ 636,129
Aaa AAA 1,200 Connecticut HEFA,
Connecticut College
(MBIA), 6.625%, 7/01/11 1,272,948
Aaa AAA 2,000 Connecticut HEFA, Trinity
College (MBIA), 6.00%,
7/01/22 2,003,960
Aaa AAA 1,555 Connecticut HEFA, Choate
Rosemary College (MBIA),
6.80%, 7/01/15 (1) 1,683,661
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 750 Connecticut HEFA, Loomis
Chafee (MBIA), 6.00%,
7/01/15 760,793
Aaa AAA 1,000 Connecticut HEFA, Loomis
Chafee (MBIA), 6.00%,
7/01/25 1,005,850
------------
$ 7,363,341
------------
INSURED MISCELLANEOUS - 0.8%
Aaa AAA $1,750 Connecticut Municipal
Electric Energy
Cooperative Bonds (MBIA),
5.00%, 1/01/18 $ 1,549,520
------------
INSURED GOVERNMENT OBLIGATIONS - 4.3%
Aaa AAA $1,220 Town of Bethel, (MBIA),
6.50%, 2/15/09 $ 1,340,243
Aaa AAA 2,000 City of Waterbury, Tax
Revenue Bonds (FGIC),
5.375%, 4/15/08 1,984,380
Aaa AAA 740 Town of Stratford, (MBIA),
6.60%, 3/01/11 800,924
Aaa AAA 1,000 City of New Britain,
(MBIA), 6.00%, 3/01/12 1,026,430
Aaa AAA 1,000 Town of Plainfield,
(MBIA), 6.375%, 8/01/11 1,045,430
Aaa AAA 2,120 Puerto Rico Public
Improvement Bonds (MBIA),
5.25%, 7/01/18 1,955,446
------------
$ 8,152,853
------------
INSURED HEALTHCARE - 1.3%
A1 AA- $1,735 Connecticut HEFA, NHP (St.
Joseph's Living Center),
(AMBAC), 5.10%, 11/01/19 $ 1,528,604
A1 AA- 1,030 Connecticut HEFA, NHP (St.
Joseph's Learning Center)
(AMBAC), 5.00%, 11/01/09 951,699
------------
$ 2,480,303
------------
INSURED HOSPITAL - 10.0%
Aaa AAA $1,000 Connecticut HEFA,
Bridgeport Hospital
(MBIA), 6.625%, 7/01/18 $ 1,051,740
Aaa AAA 6,750 Connecticut HEFA, St.
Francis Hospital (FGIC),
5.00%, 7/01/23 5,808,172
Aaa AAA 1,500 Connecticut HEFA, Lawrence
and Memorial Hospital
(MBIA), 5.00%, 7/01/13 1,345,740
Aaa AAA 5,750 Connecticut HEFA, Lawrence
and Memorial Hospital
(MBIA), 5.00%, 7/01/22 4,959,203
Aaa AAA 1,000 Connecticut HEFA, Hospital
of St. Raphael (AMBAC),
6.50%, 7/01/11 1,080,700
Aaa AAA 1,500 Connecticut HEFA, Hospital
of St. Raphael (AMBAC),
6.625%, 7/01/14 1,575,585
</TABLE>
34
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITAL - (CONTINUED)
Aaa AAA 2,000 Connecticut HEFA, Yale-New
Haven Hospital (MBIA),
6.50%, 7/01/12 2,093,380
Aaa AAA 1,200 Connecticut HEFA, Yale-New
Haven Hospital (MBIA),
7.10%, 7/01/25 1,297,800
------------
$ 19,212,320
------------
INSURED SOLID WASTE - 0.7%
Aaa AAA $1,275 Connecticut Resources
Recovery Authority Mid-
Connecticut System Bonds
(MBIA), 7.30%, 10/15/12 $ 1,343,161
------------
INSURED SPECIAL TAX - 0.7%
State of Connecticut
Special Tax Obligation
Bonds (FGIC), 5.00%,
10/01/13 $ 1,342,950
AAA $1,500
------------
INSURED WATER AND SEWER - 3.3%
Aaa AAA $1,750 Connecticut Development
Authority Water Facilities
Bonds, Connecticut Water
Company (AMBAC), (AMT),
5.875%, 9/01/22 $ 1,689,048
Aaa AAA 1,150 Connecticut Development
Authority Water Facilities
Bonds, Connecticut Water
Company (AMBAC), (AMT),
5.75%, 7/01/28 1,086,853
Aaa AAA 3,460 South Central Connecticut,
Regional Water Authority
Bonds (FGIC), 5.75%,
8/01/12 3,445,122
------------
$ 6,221,023
------------
SOLID WASTE - 8.1%
A NR $2,500 Bristol Resource Recovery
Facility Operating
Committee, (Ogden Martin
Systems), 6.50%, 7/01/14 $ 2,570,800
A2 A+ 1,000 Connecticut Resources
Recovery Authority
(American REF-FUEL
Company), (AMT), 8.10%,
11/15/15 1,104,660
A2 A+ 450 Connecticut Resources
Recovery Authority
(American REF-FUEL
Company), (AMT), 8.00%,
11/15/15 495,760
A2 A+ 4,250 Connecticut Resources
Recovery Authority
(American REF-FUEL
Company), (AMT), 6.45%,
11/15/22 4,252,805
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR A 7,970 Eastern Connecticut
Resource Recovery
Authority, (Wheelabrator
Lisbon), 5.50%, 1/01/20 7,000,609
------------
$ 15,424,634
------------
SPECIAL TAX - 2.7%
A1 AA- $1,000 State of Connecticut STOB,
4.40%, 10/01/04 $ 948,510
A1 AA- 1,000 State of Connecticut STOB,
5.40%, 9/01/10 968,880
A1 AA- 3,180 State of Connecticut STOB,
6.125%, 9/01/12 3,273,460
------------
Aaa $ 5,190,850
------------
STUDENT LOANS - 1.4%
A1 NR $ 455 Connecticut Higher
Education Supplemental
Loan Authority Revenue
Bonds (CHESLA) (AMT),
7.375%, 11/15/05 $ 477,313
A1 NR 1,350 CHESLA Revenue Bonds
(AMT), 6.20%, 11/15/09 1,355,279
A1 NR 910 CHESLA Revenue Bonds
(AMT), 7.50%, 11/15/10 960,141
------------
$ 2,792,733
------------
TRANSPORTATION - 2.4%
Baa1 A $4,465 Puerto Rico Highway and
Transportation Authority
Bonds, 5.50%, 7/01/15 $ 4,172,900
Baa1 A 500 Puerto Rico Highway and
Transportation Authority
Bonds, 5.50%, 7/01/15 467,290
------------
$ 4,640,190
------------
UTILITY - 4.3%
NR BBB $1,100 Guam Power Authority
Revenue Bonds, 6.625%,
10/01/14 $ 1,115,015
NR BBB 3,625 Guam Power Authority
Revenue Bonds, 6.30%,
10/01/22 3,532,671
NR NR 3,500 Virgin Islands Water and
Power Authority, Electric
Revenue System Bonds,
7.40%, 7/01/11 3,646,055
------------
$ 8,293,741
------------
WATER & SEWER REVENUE - 2.2%
Aa AA $1,250 State of Connecticut Clean
Water Fund Revenue Bonds,
6.00%, 10/01/12 $ 1,286,438
Aa AA 1,000 State of Connecticut Clean
Water Fund Revenue Bonds,
5.80%, 6/01/16 996,310
</TABLE>
35
<PAGE>
-------
CONNECTICUT TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
WATER & SEWER REVENUE - (CONTINUED)
NR A+ 2,225 Connecticut Development
Authority Water Facilities
(Stamford Water Company),
5.30%, 9/01/28 2,010,243
------------
$ 4,292,991
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $192,808,845) $191,254,509
----------
----------
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by Connecticut
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 30.4% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.6% to 14.2% of total investments.
See notes to financial statements
36
<PAGE>
-------
Michigan Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 1.1%
NR BBB- $2,000 Puerto Rico Polytechnic
University, 6.50%, 8/01/24 $ 1,999,980
------------
ELECTRIC UTILITIES - 2.6%
NR BBB $1,000 Guam Power Authority,
6.625%, 10/01/14 $ 1,013,650
Baa1 BBB+ 500 Michigan South Central
Power Agency Supply
System, 6.75%, 11/01/10 517,475
Baa1 BBB 1,790 Monroe County, Michigan
PCR Detroit Edison
Project, 7.75%, 12/01/19 1,946,320
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 5.00%, 7/01/12 885,850
Baa1 A- 365 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 395,788
------------
$ 4,759,083
------------
ESCROWED - 6.2%
NR AA $ 940 Detroit City School
District, Michigan School
Building and Site, 7.15%,
5/01/11 $ 1,074,185
Aaa AAA 1,000 Lake Orion, Michigan
School District U.T.G.O.,
7.00%, (AMBAC) 5/01/20 1,171,550
Aaa AAA 750 Michigan HFA, Oakwood
Hospital (FGIC), 7.20%,
11/01/15 855,308
Aaa AAA 3,500 Monroe County, Michigan
EDC Mercy Memorial
Hospital (MBIA), 7.00%,
9/01/21 4,003,930
NR AA 955 Okemos Public Schools,
Michigan School Building
and Site, 6.90%, 5/01/11 1,079,398
Baa1 AAA 635 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 710,635
NR NR 2,400 Wyandotte School District,
Michigan School Building
and Site, 6.90%, 5/01/16 2,712,624
------------
$ 11,607,630
------------
GENERAL OBLIGATIONS - 5.2%
Aa AA $ 500 Avondale School District,
Michigan School Building
and Site, 6.75%, 5/01/14 $ 524,220
Aa AA 2,550 Clintondale Community
Schools, Michigan 6.75%,
5/01/24 2,686,093
Ba1 BBB 500 Detroit City, Michigan,
8.00%, 4/01/11 543,185
Ba1 BBB 2,925 Detroit City, Michigan,
6.35%, 4/01/14 2,877,615
A AA 500 East Lancing Building
Authority, Michigan,
7.00%, 10/01/16 527,070
Aa AA 1,350 Martin Public Schools,
Michigan School Building
and Site, 6.60%, 5/01/20 1,400,450
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA 1,000 Mattawan Consolidated
Schools, Michigan, 6.40%,
5/01/09 1,044,760
------------
$ 9,603,393
------------
HOSPITAL - 12.9%
A A $ 450 Michigan HFA Detroit
Medical Center Obligated
Group, 7.50%, 8/15/11 $ 487,651
A A 4,550 Michigan HFA Detroit
Medical Center Obligated
Group, 5.50%, 8/15/23 3,898,941
A A 5,500 Michigan HFA Detroit
Medical Center Obligated
Group, 6.25%, 8/15/13 5,309,810
A A 1,000 Michigan HFA Detroit
Medical Center Obligated
Group, 6.50%, 8/15/18 978,950
Aa AA 250 Michigan HFA Henry Ford
Continuing Care
Corporation, 6.75%,
7/01/11 264,555
A1 NR 2,970 Michigan HFA McLaren
Obligated Group, 5.375%,
10/15/13 2,659,843
A1 NR 6,000 Michigan HFA McLaren
Obligated Group, 4.50%,
10/15/21 4,456,559
A A 4,130 Michigan HFA MidMichigan
Obligated Group, 6.625%,
6/01/10 4,215,574
Aa AA 1,750 Royal Oak, Michigan
William Beaumont Hospital,
6.75%, 1/01/20 1,815,818
------------
$ 24,087,701
------------
HOUSING - 1.9%
NR A+ $1,500 Michigan HDA Rental
Housing (AMT), 7.15%,
4/01/10 $ 1,587,150
NR A+ 1,000 Michigan HDA Rental
Housing, 7.10%, 4/01/21 1,038,320
NR AA+ 895 Michigan HDA Single Family
Mortgage, 6.95%, 12/01/20 920,472
------------
$ 3,545,942
------------
INDUSTRIAL DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - 6.1%
Baa1 BBB $3,970 Dickinson, MI PCR-Champion
International, 5.85%,
10/01/18 $ 3,753,436
Baa1 BBB 3,000 Michigan Job Development
Authority PCR-General
Motors, 5.55%, 10/01/09
(1) 2,877,750
A3 BBB+ 3,750 Michigan Strategic Fund-
General Motors, 6.20%,
9/01/20 3,702,788
NR BBB+ 500 Michigan Strategic
Fund-KMart Corporation,
6.80%, 6/15/07 513,520
</TABLE>
37
<PAGE>
-------
MICHIGAN TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - (CONTINUED)
NR BBB 530 Richmond, Michigan EDC
KMart Corporation, 6.625%,
1/01/07 541,305
------------
$ 11,388,799
------------
INSURED EDUCATION - 2.6%
Aaa AAA $ 500 Michigan Higher Education
Student Loan (AMBAC),
6.875%, 10/01/07 $ 525,110
Aaa AAA 2,000 Northern Michigan
University, Michigan
General Revenue (AMBAC),
6.55%, 12/01/14 2,093,840
Aaa AAA 1,250 Oakland University,
Michigan General Revenue
(MBIA), 5.75%, 5/15/26 1,194,425
Aaa AAA 500 University of Puerto Rico
(MBIA), 5.25%, 6/01/25 456,545
Aaa AAA 500 Western Michigan
University (AMBAC), 6.50%,
7/15/21 517,195
------------
$ 4,787,115
------------
INSURED ELECTRIC UTILITIES - 6.3%
Aaa AAA $1,510 Grand Haven City, Michigan
Electric System (MBIA),
5.25%, 7/01/13 $ 1,380,442
Aaa AAA 300 Michigan Strategic Fund,
Detroit Edison Company
(FGIC), 6.95%, 5/01/11 335,595
Aaa AAA 4,000 Michigan Strategic Fund,
Detroit Edison Company
(FGIC), 6.95%, 9/01/21 4,272,040
Aaa AAA 550 Monroe County, Michigan
PCR Detroit Edison Company
(FGIC) (AMT), 7.65%,
9/01/20 607,508
Aaa AAA 5,000 Monroe County, Michigan
PCR Detroit Edison Company
(MBIA) (AMT), 6.55%,
9/01/24 5,133,100
------------
$ 11,728,685
------------
INSURED GENERAL - 2.1%
Aaa AAA $4,500 Livonia, Michigan School
District U.T.G.O. (FGIC),
5.125%, 5/01/22 $ 3,956,670
------------
INSURED GENERAL OBLIGATION - 12.8%
Aaa AAA $ 250 Byron Center, Michigan
Public Schools U.T.G.O.
(MBIA), 5.875%, 5/01/24 $ 243,050
Aaa AAA 1,000 Chelsea, Michigan School
District U.T.G.O. (FGIC),
5.875%, 5/01/25 (2) 969,170
Aaa AAA 1,500 Dearborn, Michigan School
District U.T.G.O. (MBIA),
5.00%, 5/01/10 1,373,655
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 2,000 Grand Ledge, Michigan
School District U.T.G.O.
(MBIA), 7.875%, 5/01/11 2,344,760
Aaa AAA 1,000 Greenville, Michigan
Public Schools U.T.G.O.
(MBIA) 964,510
Aaa AAA 2,000 Holland City, Michigan
School District U.T.G.O.
(AMBAC), 5.25%, 7/01/13 530,180
Aaa AAA 5,020 Huron Valley, Michigan
School District U.T.G.O.
(FGIC), 5/01/20 1,108,014
Aaa AAA 2,000 Lowell Schools, Michigan
U.T.G.O. (FGIC), 5/01/16 569,260
Aaa AAA 2,000 Napoleon, Michigan School
District U.T.G.O. (FGIC)
5.50%, 5/01/20 1,861,980
Aaa AAA 1,000 Napoleon, Michigan School
District U.T.G.O. (FGIC)
5.50%, 5/01/24 920,280
Aaa AAA 2,610 Okemos, Michigan Public
Schools U.T.G.O. (MBIA),
5/01/16 745,860
Aaa AAA 500 Pellston, Michigan Public
Schools U.T.G.O. (MBIA),
6.625%, 5/01/12 529,325
Aaa AAA 2,000 Portage Lake, Michigan
Water & Sewer G.O.
(AMBAC), 6.20%, 10/01/20 2,032,240
Aaa AAA 4,000 Riverview Community School
District, Michigan
U.T.G.O. (AMBAC), 5.25%,
5/01/21 3,565,600
Aaa AAA 2,000 Riverview Community School
District, Michigan
U.T.G.O. (AMBAC), 5.25%,
5/01/14 1,823,940
Aaa AAA 1,400 Vicksburg Community
Schools, Michigan U.T.G.O.
(MBIA), 5/01/16 392,112
Aaa AAA 1,000 Vicksburg Community
Schools, Michigan U.T.G.O.
(MBIA), 5/01/17 263,410
Aaa AAA 2,500 Warren, Michigan School
District U.T.G.O. (MBIA),
5.50%, 5/01/14 2,370,950
Aaa AAA 1,390 Warren, Michigan School
District U.T.G.O. (MBIA),
5.25%, 5/01/21 1,252,362
------------
$ 23,860,658
------------
INSURED HEALTHCARE - 1.0%
Aaa AAA $2,000 Farmington Hills, Michigan
EDC-Botsford Continuing
Care (MBIA), 5.75%,
2/15/25 $ 1,907,260
------------
INSURED HOSPITAL - 12.4%
Aaa AAA $3,000 Dearborn City, Michigan
EDC Oakwood Obligated
Group (MBIA), 5.25%,
8/15/14 $ 2,711,940
</TABLE>
38
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITAL - (CONTINUED)
Aaa AAA 1,000 Dearborn City, Michigan
EDC Oakwood Obligated
Group (MBIA), 5.25%,
8/15/21 882,690
Aaa AAA 3,500 Jackson County, Michigan
HFA W.A. Foote Memorial
(FGIC), 4.75%, 6/01/15 2,992,745
Aaa AAA 5,735 Kalamazoo City, Michigan
HFA Borgess Medical Center
(FGIC), 5.25%, 6/01/17 5,221,316
Aaa AAA 1,750 Kent City, Michigan HFA
Butterworth Hospital
(MBIA), 5.375%, 1/15/19 1,592,762
Aaa AAA 1,015 Michigan HFA Mercy
Memorial Hospital (MBIA),
5.25%, 6/01/13 936,429
Aaa AAA 2,715 Michigan HFA Mercy
Memorial Hospital (MBIA),
5.25%, 6/01/21 2,429,491
Aaa AAA 1,000 Michigan HFA Oakwood
Hospital Obligated Group
(FGIC), 5.625%, 11/01/18 954,410
Aaa AAA 1,500 Michigan HFA Sisters of
Mercy Health Corporation
(MBIA), 5.25%, 8/15/21 1,332,885
Aaa AAA 3,200 Michigan HFA Linked Bulls
& Bears (FSA), 6.10%,
8/15/22 3,221,504
Aaa AAA 1,000 St. Joseph City, Michigan
HFA Mercy Memorial Medical
Center (AMBAC), 5.25%,
1/01/16 910,150
------------
$ 23,186,322
------------
INSURED HOUSING - 1.7%
Aaa AAA $ 500 Michigan HDA Parkway
Meadows Projects (FSA),
6.85%, 10/15/18 $ 518,495
Aaa AAA 2,780 Michigan HDA Mercy
Bellbrook Project (MBIA),
5.375%, 4/01/10 2,617,036
------------
$ 3,135,531
------------
INSURED SPECIAL TAX - 0.2%
Aaa AAA $ 400 Grand Rapids, Michigan
Downtown Development
Authority Tax Increment
(MBIA), 6.875%, 6/01/24 $ 429,840
------------
INSURED TRANSPORTATION - 1.9%
Aaa AAA $1,000 Wayne County, Michigan
Airport (MBIA), 5.25%,
12/01/13 $ 921,380
Aaa AAA 1,000 Wayne County, Michigan
Airport (MBIA), 5.40%,
12/01/16 909,250
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 2,000 Wayne County, Michigan
Airport (MBIA), 5.25%,
12/01/21 1,788,000
------------
$ 3,618,630
------------
INSURED WATER & SEWER - 7.5%
Aaa AAA $ 300 Clinton Township, Michigan
Water and Sewage System
(AMBAC), 4.75%, 7/01/09 $ 272,325
Aaa AAA 400 Clinton Township, Michigan
Water and Sewage System
(AMBAC), 4.75%, 7/01/10 359,544
Aaa AAA 400 Clinton Township, Michigan
Water and Sewage System
(AMBAC), 4.75%, 7/01/11 357,872
Aaa AAA 400 Clinton Township, Michigan
Water and Sewage System
(AMBAC), 4.75%, 7/01/12 356,288
Aaa AAA 4,425 Detroit City, Michigan
Water Supply System
(FGIC), 6.25%, 7/01/12 4,549,343
Aaa AAA 9,680 Detroit City, Michigan
Water Supply System
(FGIC), 4.75%, 7/01/19 8,078,250
------------
$ 13,973,622
------------
MISCELLANEOUS - 3.4%
A1 AA $ 590 Michigan Municipal Bond
Authority Local Government
Loan, 6.90%, 5/01/21 $ 648,404
A1 AA 2,550 Michigan Municipal Bond
Authority Local Government
Loan-Qualified School,
6.50%, 5/01/07 2,768,356
A1 AA 760 Michigan Municipal Bond
Authority Local Government
Loan, 6.50%, 5/01/08 822,685
NR A- 2,000 Michigan Strategic
Environmental Research
Institute, 6.375%, 8/15/12 2,041,880
------------
$ 6,281,325
------------
SOLID WASTE - 4.5%
NR BBB- $4,220 Greater Detroit, Michigan
Resource Recovery
Authority, 9.25%, 12/13/08 $ 4,391,712
NR BBB- 1,000 Greater Detroit, Michigan
Resource Recovery
Authority, 9.25%, 12/13/08 1,040,690
NR BBB- 1,915 Greater Detroit, Michigan
Resource Recovery
Authority, 9.25%, 12/13/08 1,992,921
NR BBB- 1,000 Greater Detroit, Michigan
Resource Recovery
Authority, 9.25%, 12/13/08 1,040,690
------------
$ 8,466,013
------------
</TABLE>
39
<PAGE>
-------
MICHIGAN TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX REVENUE - 5.6%
NR BBB+ $ 250 Battle Creek, Michigan
Downtown Development
Authority Tax Increment,
7.60%, 5/01/16 $ 272,698
NR BBB+ 1,315 Battle Creek, Michigan
Downtown Development
Authority Tax Increment,
7.65%, 5/01/22 1,438,742
NR A 7,650 Detroit City Convention
Facility, Michigan Cobo
Hall Expansion Project,
5.25%, 9/30/12 (3) 6,843,690
NR A 1,825 Michigan Muni Bond
Authority Local Government
Loan Project, 6.75%,
5/01/12 1,944,811
------------
$ 10,499,941
------------
TRANSPORTATION - 1.1%
Baa1 A $2,175 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/01/19 $ 1,988,842
------------
WATER & SEWER - 0.9%
Aa AA $1,895 Lansing City, Michigan
Water and Electric Utility
System, 4.90%, 7/01/10 $ 1,713,914
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $182,066,681) $186,526,896
----------
----------
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
(2) When-issued security.
(3) Security has been segregated to cover when-issued securities.
The Portfolio invests primarily in debt securities issued by Michigan
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 51.8% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 2.0% to
22.0% of total investments.
See notes to financial statements
40
<PAGE>
-------
Minnesota Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 3.2%
A NR $ 100 Minnesota Higher Education
Facilities Authority, St.
Olaf College, 6.25%,
4/01/10 $ 100,034
Baa NR 1,000 Minnesota Higher Education
Facilities Authority, St.
Mary's College, 6.15%,
10/01/23 968,720
A NR 1,500 Northfield Minnesota, St.
Olaf College, 6.40%,
10/01/21 1,543,785
-----------
$ 2,612,539
-----------
ESCROWED - 5.4%
Aa AA+ $1,700 State of Minnesota "RIBS",
Variable, 8/01/11 (1) $ 2,016,625
A1 AAA 400 Southern Minnesota
Municipal Power Agency,
7.00%, 1/01/16 413,272
Aaa AAA 1,840 Western Minnesota Municipal
Power Agency, 6.375%,
1/01/16 1,956,380
-----------
$ 4,386,277
-----------
GENERAL OBLIGATIONS - 11.2%
Aa NR $ 500 Brainerd, Independent
School District, 5.50%,
2/01/15 $ 476,455
Aaa AAA 700 City of Minneapolis, 6.25%,
4/01/12 727,902
Aaa AAA 1,000 City of Minneapolis, 5.20%,
3/01/23 943,830
Aa1 AA+ 2,000 State of Minnesota, 5.40%,
8/01/13 1,913,500
Aa1 AA+ 1,000 State of Minnesota, Duluth
Airport, 6.25%, 8/01/14 1,019,330
Aa1 AA+ 1,000 State of Minnesota, Duluth
Airport, 6.25%, 8/01/14 1,019,330
Aa AA 1,250 Regents of the University
of Minnesota, "INFLOS",
Variable, 8/15/03 (1) 1,181,412
A AA- 200 City of Saint Cloud,
"Inverse Floaters",
Variable, 8/01/13 (1) 205,000
Aa NR 1,595 White Bear Lake,
Independent School
District, 6.00%, 2/01/14 1,596,037
-----------
$ 9,082,796
-----------
HEALTHCARE (NON-HOSPITAL) - 5.7%
A A- $1,250 Minneapolis and St. Paul
Housing and Redevelopment
Authority, Group Health
Plan, Inc., 6.75%, 12/01/13 $ 1,298,000
A A- 250 Minneapolis and St. Paul
Housing and Redevelopment
Authority, Group Health
Plan, Inc., 6.90%, 10/15/22 262,768
NR NR 1,000 St. Paul Housing and
Redevelopment Authority,
Highland Park, 8.75%,
11/01/24 997,670
NR BBB+ 2,120 City of Red Wing, Minnesota
Health Care Facilities
Revenue, River Region
Obligated Group, 6.50%,
9/01/22 2,054,322
-----------
$ 4,612,760
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - 6.9%
NR AA+ $1,400 City of Rochester,
Minnesota Health Care
Facilities (MHCF) Mayo
Foundation/Medical Center,
6.026%, 11/15/15 $ 1,374,142
NR AA+ 500 City of Rochester, MHCF
Mayo Foundation/Medical
Center, "Inverse Floaters",
Variable 11/15/15 (1) 500,000
NR AA+ 1,700 City of Rochester, MHCF
Mayo Foundation/Medical
Center, 5.75%, 11/15/21 1,668,193
Baa BBB- 1,000 St. Paul Housing and
Redevelopment Authority,
Healtheast Project, 6.625%,
11/01/17 969,920
A A+ 1,000 St. Paul Housing and
Redevelopment Authority,
Childrens Hospital, 7.00%,
12/01/19 1,080,420
-----------
$ 5,592,675
-----------
HOUSING - 13.6%
NR AAA $ 300 City of Coon Rapids, Multi-
Family Housing (MFH) Browns
Meadow Manor, (FHA), (AMT),
6.85%, 7/01/33 $ 300,570
NR AAA 1,395 County of Dakota, Housing
and Redevelopment
Authority, (GNMA), 7.375%,
12/01/29 (2) 1,473,259
Aa NR 1,200 City of Maplewood MFH,
Beaver Creek Apartments,
(FHA), 6.50%, 9/01/24 1,182,960
NR AAA 90 Minneapolis and St. Paul
Housing Finance Board,
(GNMA), (AMT), 7.30%,
8/01/31 94,035
Aa AA 420 Minnesota Housing Finance
Agency, Single-Family
Mortgage, (SFM), 7.70%,
7/01/14 450,114
Aa AA 380 Minnesota Housing Finance
Agency, SFM, 7.05%, 7/01/22 390,085
Aa AA 1,095 Minnesota Housing Finance
Agency, SFM, (AMT), 5.80%,
7/01/25 1,007,860
Aa AA+ 465 Minnesota Housing Finance
Agency, SFM, 6.95%, 7/01/16 481,094
Aa AA+ 1,000 Minnesota Housing Finance
Agency, SFM, (AMT), 6.75%,
7/01/12 1,019,330
Aa AA+ 1,235 Minnesota Housing Finance
Agency, SFM, (AMT), 6.85%,
1/01/24 1,254,612
Aa AA+ 1,700 Minnesota Housing Finance
Agency, SFM, (AMT), 6.50%,
1/01/26 1,686,502
</TABLE>
41
<PAGE>
-------
MINNESOTA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aa AA+ 710 Minnesota Housing Finance
Agency, SFM, (AMT), 6.75%,
1/01/26 714,352
Aa AA+ 430 Minnesota Housing Finance
Agency, SFM, (AMT), 6.15%,
1/01/26 410,121
NR AAA 230 St. Paul, Minnesota Housing
and Redevelopment
Authority, (FNMA), 6.95%,
12/01/31 236,845
NR AAA 360 St. Paul, Minnesota Housing
and Redevelopment
Authority, (FNMA), 6.90%,
12/01/21 370,735
-----------
$11,072,474
-----------
INDUSTRIAL DEVELOPMENT/POLLUTION
CONTROL - 8.8%
NR AA- $ 300 City of Minneapolis,
Minnesota Community
Development Agency, 6.40%,
12/01/04 $ 315,618
NR BBB+ 100 City of Minneapolis,
Minnesota Community
Development Agency, 7.35%,
12/01/09 104,342
NR BBB+ 1,605 City of Minneapolis,
Minnesota Community
Development Agency, 6.80%,
12/01/24 1,574,810
Aa3 AA- 3,000 Seaway Port Authority of
Duluth, Cargill, Inc.,
6.80%, 5/01/12 3,203,130
Aa3 NR 2,000 Seaway Port Authority of
Duluth, Cargill, Inc.,
5.75%, 12/01/16 1,961,300
-----------
$ 7,159,200
-----------
INSURED GENERAL OBLIGATION - 3.6%
Aaa AAA $ 500 Cass Lake, Independent
School District, (AMBAC),
6.625%, 2/01/12 $ 537,370
Aaa AAA 1,000 Roseville, Independent
School District, (FGIC),
6.00%, 2/01/23 998,650
Aaa AAA 1,330 St. Francis, Independent
School District No. 15,
(CGIC), 6.35%, 2/01/12 1,391,153
-----------
$ 2,927,173
-----------
INSURED HOSPITAL - 19.7%
Aaa AAA $ 750 Duluth Economic Development
Authority, The Duluth
Clinic, (AMBAC), 6.20%,
11/01/12 $ 771,690
Aaa AAA 100 Minneapolis and St. Paul
Health Care Systems, Health
One Obligated Group,
(MBIA), 7.40%, 8/15/11 108,990
Aaa AAA 5,845 Minneapolis and St. Paul
Health Care Systems,
Healthspan, (AMBAC), 4.75%,
11/15/18 4,895,655
Aaa AAA 250 City of Minneapolis,
Hospital Revenue, Fairview
Hospital and Healthcare,
(MBIA), 6.50%, 1/01/11 262,517
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 750 Plymouth, Health
Facilities, Westhealth
Project (CGIC), 6.25%,
6/01/16 768,293
Aaa AAA 1,000 City of Saint Cloud,
Hospital Facilities, The
Saint Cloud Hospital,
(AMBAC), 6.75%, 7/01/15 1,063,430
Aaa AAA 3,650 City of St. Louis Park,
Health Care Facilities
Health System Minnesota
Obligated Group, (AMBAC),
5.20%, 7/01/23 3,234,119
Aaa AAA 5,150 St. Paul Housing and
Redevelopment Authority,
St. Paul-Ramsey Medical
Center Project, (AMBAC),
5.55%, 5/15/23 4,891,213
-----------
$15,995,907
-----------
INSURED HOUSING - 1.9%
Aaa AAA $1,500 SCA Tax Exempt Trust,
Burnsville, Minnesota
Multi-Family Housing,
(FSA), 7.10%, 1/01/30 $ 1,538,775
-----------
INSURED SPECIAL TAX - 3.5%
Aaa AAA $3,000 St. Paul Housing and
Redevelopment Authority,
Civic Center Project,
(MBIA), 5.45%, 11/01/13 $ 2,840,460
-----------
INSURED UTILITIES - 3.9%
Aaa AAA $ 300 Northern Municipal Power
Agency, (AMBAC), 6.00%,
1/01/19 $ 300,528
Aaa AAA 750 Southern Minnesota
Municipal Power Agency,
(MBIA), 5.00%, 1/01/12 688,477
Aaa AAA 300 Southern Minnesota
Municipal Power Agency,
"Yield Curve Notes",
(MBIA), Variable, 1/01/18
(1) 283,512
Aaa AAA 6,950 Southern Minnesota
Municipal Power Agency,
(MBIA), 0%, 10/01/21 1,494,737
Aaa AAA 510 Western Minnesota Municipal
Power Agency, (MBIA),
5.50%, 1/01/15 489,416
-----------
$ 3,256,670
-----------
LEASE/CERTIFICATE OF
PARTICIPATION - 2.7%
Baa1 NR $ 350 City of Cambridge, Economic
Development Authority,
6.25%, 2/01/14 $ 347,722
</TABLE>
42
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
LEASE/CERTIFICATE OF PARTICIPATION -
(CONTINUED)
Aa AA 1,770 Hennepin County, Lease
Revenue Certificates of
Participation, 6.80%,
5/01/17(2) 1,856,199
-----------
$ 2,203,921
-----------
MISCELLANEOUS - 0.9%
A A $ 750 Metropolitan Council,
Minneapolis-St. Paul
Metropolitan Area Sports
Facilities, Hubert H.
Humphrey Metrodome, 6.00%,
10/01/09 $ 757,815
-----------
TRANSPORTATION - 0.6%
Aaa AAA $ 200 Minneapolis and St. Paul,
Minnesota Metropolitan
Airports Commission, (AMT),
6.60%, 1/01/09 $ 211,186
Aaa AAA 300 Minneapolis and St. Paul,
Minnesota Metropolitan
Airports Commission, (AMT),
6.60%, 1/01/10 316,779
-----------
$ 527,965
-----------
UTILITY - 5.1%
Aa3 A- $1,200 Bass Brook, Pollution
Control Revenue, Minnesota
Power & Light Company,
6.00%, 7/01/22 $ 1,173,300
A A 1,500 Northern Municipal Power
Agency, Minnesota Electric,
7.25%, 1/01/16 1,624,965
A1 A+ 1,000 Southern Minnesota
Municipal Power Agency,
5.00%, 1/01/12 902,250
A A 450 Western Minnesota Municipal
Power Agency, 7.00%,
1/01/13 468,599
-----------
$ 4,169,114
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
WATER AND SEWER - 3.3%
Aa3 A $ 450 Anoka County, Minnesota
Solid Waste Disposal
Revenue Natural Rural
Utilities, 6.95%, 12/01/08 $ 483,421
Aa AAA 100 Minnesota Public Facilities
Authority Water Pollution
Control, 7.00%, 3/01/09 107,398
Aa AAA 150 Minnesota Public Facilities
Authority Water Pollution
Control, 6.70%, 3/01/13 160,380
Aa AAA 1,835 Minnesota Public Facilities
Authority Water Pollution
Control, 6.50%, 3/01/14 1,933,393
-----------
$ 2,684,592
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $78,851,048) $81,421,113
---------
---------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by Minnesota
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 34.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.4% to 19.3% of total investments.
See notes to financial statements
43
<PAGE>
-------
New Jersey Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 5.0%
NR NR $15,750 New Jersey Economic
Development Authority,
Vineland Cogeneration
Limited Partnership,
(AMT), 7.875%, 6/01/19 $ 16,904,475
NR BB+ 3,370 New Jersey Economic
Development Authority,
Trigen-Trenton Project,
(AMT), 6.10%, 12/01/04 3,346,039
------------
$ 20,250,514
------------
EDUCATION - 3.5%
Baa1 BBB $ 2,480 New Jersey Educational
Facilities Authority,
Seton Hall University,
7.00%, 7/01/21 $ 2,618,235
Aa1 AA+ 1,000 New Jersey Educational
Facilities Authority,
Princeton Theological
Seminary, 6.375%, 7/01/22 1,034,580
NR NR 8,800 New Jersey State Higher
Education Assistance
Authority, (AMT), 0%,
7/01/20 3,042,952
NR BBB- 1,760 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Authority, Polytechnic
University, 5.70%, 8/01/13 1,620,626
NR BBB- 1,310 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Authority, Polytechnic
University, 5.50%, 8/01/24 1,139,988
NR BBB- 1,000 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Authority, Polytechnic
University, 6.50%, 8/01/24 999,990
A1 AA 2,500 Rutgers, The State
University of New Jersey,
6.85%, 5/01/21 2,658,400
A AA 1,000 University of Medicine and
Dentistry of New Jersey,
7.20%, 12/01/19 1,089,280
------------
$ 14,204,051
------------
ESCROWED - 0.8%
Aaa AAA $ 870 The City of Newark, New
Jersey (AMBAC), 7.375%,
10/01/07 $ 985,440
NR NR 2,000 County of Passaic, New
Jersey, 6.70%, 9/01/13 2,207,360
------------
$ 3,192,800
------------
GENERAL OBLIGATIONS - 13.3%
NR BBB $ 9,745 Government of Guam, 5.40%,
11/15/18 $ 8,414,515
NR A+ 5,000 The Hudson County
Improvement Authority,
6.625%, 8/01/25 5,235,950
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa1 NR 3,000 Mercer County Improvement
Authority Solid Waste, 0%,
4/01/10 1,299,240
Baa1 A 1,990 Commonwealth of Puerto
Rico, 6.45%, 7/01/17 2,083,530
Baa1 A 5,000 Commonwealth of Puerto
Rico, 6.50%, 7/01/23 5,234,400
Baa BBB 5,645 The Commonwealth of Puerto
Rico Aqueduct and Sewer
Authority, 7.875%, 7/01/17 6,253,305
Baa1 A 3,250 Puerto Rico Public
Buildings Authority,
Public Education and
Health Facilities, 5.75%,
7/01/15 3,119,675
Baa1 A 5,125 Puerto Rico Public
Buildings Authority,
Public Education and
Health Facilities, 5.50%,
7/01/21 4,695,730
Baa1 A 2,075 Puerto Rico Public
Buildings Authority,
Public Education and
Health Facilities, 5.75%,
7/01/16 1,977,932
NR NR 14,850 Virgin Islands Public
Finance Authority, 7.25%,
10/01/18 15,318,517
------------
$ 53,632,794
------------
HEALTHCARE (NON-HOSPITAL) - 3.0%
NR BBB $ 615 New Jersey Economic
Development Authority
Cadbury Corporation,
7.50%, 7/01/21 $ 593,875
NR BBB 300 New Jersey Economic
Development Authority
Cadbury Corporation,
8.70%, 7/01/07 319,896
NR NR 1,400 New Jersey Economic
Development Authority,
Claremont Health System,
9.10%, 9/01/22 1,465,632
NR NR 2,500 New Jersey Economic
Development Authority,
Victoria Health
Corporation, 7.65%,
1/01/14 2,372,700
NR NR 4,000 New Jersey Economic
Development Authority,
Keswick Pines Project,
8.75%, 1/01/24 3,991,120
NR NR 3,630 New Jersey Economic
Development Authority,
Forsgate Project, 8.625%,
6/01/25 3,410,857
------------
$ 12,154,080
------------
HOSPITALS - 6.6%
Aa AAA $10,790 New Jersey Health Care
Facilities Financing
Authority, Barnert
Hospital, (FHA), 6.80%,
8/01/19 $ 11,298,209
</TABLE>
44
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - (CONTINUED)
A A- 2,300 New Jersey Health Care
Facilities Financing
Authority, Atlantic City
Medical Center, 6.80%,
7/01/11 2,417,300
Baa1 NR 3,100 New Jersey Health Care
Facilities Financing
Authority, Deborah Heart
and Lung Center, 6.30%,
7/01/23 3,047,796
Baa NR 2,000 New Jersey Health Care
Facilities Financing
Authority, Southern Ocean
County Hospital, 6.25%,
7/01/23 1,842,100
A A- 9,650 New Jersey Health Care
Facilities Financing
Authority, Chilton
Memorial Hospital, 5.00%,
7/01/13 8,175,866
------------
$ 26,781,271
------------
HOUSING - 4.4%
Aa AA $ 1,250 New Jersey Building
Authority, 7.20%, 6/15/13 $ 1,357,438
Aa AA- 2,591 New Jersey Building
Authority, Garden State
Savings, 0%, 6/15/10 1,105,813
NR AAA 3,700 New Jersey Housing and
Mortgage Finance Agency,
Presidential Plaza, (FHA),
7.00%, 5/01/30 3,832,793
NR AAA 2,000 New Jersey Housing and
Mortgage Finance Agency,
Presidential Plaza, (FHA),
6.95%, 5/01/13 2,084,940
NR AA+ 1,000 New Jersey Housing and
Mortgage Finance Agency,
Section 8, 7.10%, 11/01/12 1,040,920
NR AA+ 1,975 New Jersey Housing and
Mortgage Finance Agency,
Section 8, 7.10%, 11/01/11 2,055,817
NR AA+ 1,250 New Jersey Housing and
Mortgage Finance Agency,
Rental Housing, (AMT),
7.25%, 11/01/22 1,287,025
NR A+ 1,000 New Jersey Housing and
Mortgage Finance Agency,
Rental Housing, (AMT),
7.10%, 5/01/22 1,029,330
NR A+ 3,715 New Jersey Housing and
Mortgage Finance Agency,
6.60%, 11/01/14 3,773,511
Aaa AAA 300 Puerto Rico Housing
Finance Corporation
Mortgage Revenue (GNMA),
6.85%, 10/15/23 310,209
------------
$ 17,877,796
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/POLLUTION
CONTROL - 5.0%
NR NR $ 2,000 Middlesex County Pollution
Control Financing
Authority, Amerada Hess
Corporation, 7.875%,
6/01/22 $ 2,238,020
NR NR 4,000 Middlesex County Pollution
Control Financing
Authority, Amerada Hess
Corporation, 6.875%,
12/01/22 4,168,480
Aa1 NR 3,000 New Jersey Economic
Development Authority,
Garden State Paper
Company, (AMT), 7.125%,
4/01/22 3,124,320
NR NR 2,000 New Jersey Economic
Development Authority, The
Seeing Eye, Inc., 7.30%,
4/01/11 2,123,560
NR BBB 1,160 New Jersey Economic
Development Authority,
National Association of
Accountants, Inc., 7.65%,
7/01/09 1,241,583
NR AA- 3,300 New Jersey Economic
Development Authority, Oak
Grove Associates, 6.125%,
12/01/06 3,401,937
Baa1 A- 2,135 New Jersey Economic
Development Authority,
GATX Terminals
Corporation, 7.30%,
9/01/19 2,349,098
Aa3 AA- 1,300 Puerto Rico Industrial,
Medical and Environmental
Pollution Control
Authority, Motorola, Inc.,
6.75%, 1/01/14 1,375,712
------------
$ 20,022,710
------------
INSURED EDUCATION - 0.5%
Aaa AAA $ 2,000 New Jersey State
Educational Facilities
Authority, Seton Hall
University, (BIGI), 6.85%,
7/01/19 $ 2,106,540
------------
INSURED HOSPITALS - 1.4%
Aaa AAA $ 1,310 New Jersey Health Care
Facilities Financing
Authority, Hackensack
Medical Center, (FGIC),
6.625%, 7/01/17 $ 1,372,631
Aaa AAA 2,000 New Jersey Health Care
Facilities Financing
Authority, Hackensack
Medical Center, (FGIC),
6.25%, 7/01/21 2,033,380
Aa AA- 480 New Jersey Health Care
Facilities Financing
Authority, Cathedral
Health Services (MBIA),
7.25%, 2/15/10 522,144
</TABLE>
45
<PAGE>
-------
NEW JERSEY TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS - (CONTINUED)
Aa AA- 1,570 New Jersey Health Care
Facilities Financing
Authority, Cathedral
Health Services, (MBIA)
7.25%, 2/15/21 1,700,059
------------
$ 5,628,214
------------
INSURED HOUSING - 1.3%
Aaa AAA $ 1,410 New Jersey Housing and
Mortgage Finance Agency,
(MBIA), 7.375%, 10/01/17 $ 1,468,007
Aaa AAA 1,760 New Jersey Housing and
Mortgage Finance Agency,
(AMT), (MBIA), 7.70%,
10/01/29 1,847,402
Aaa AAA 1,745 Pennsauken Township
Housing Finance
Corporation, (MBIA),
8.00%, 4/01/11 1,836,665
------------
$ 5,152,074
------------
INSURED LEASE REVENUE - 5.8%
Aaa AAA $ 3,900 County of Atlantic, Public
Facilities Lease
Agreement, (FGIC), 6.00%,
3/01/13 $ 4,011,072
Aaa AAA 1,750 County of Hudson, New
Jersey Correctional
Facility, (MBIA), 6.50%,
12/01/11 1,842,925
Aaa AAA 6,240 County of Hudson, New
Jersey Correctional
Facility, (MBIA), 6.60%,
12/01/21 6,537,648
Aaa AAA 2,500 County of Hudson, New
Jersey Improvement
Authority, Secondary Yield
Curve Notes, (FGIC),
Variable, 12/01/25 (1) 2,507,900
Aaa AAA 1,800 County of Middlesex,
Certificates of
Participation, (MBIA),
6.125%, 2/15/19 1,835,622
Aaa AAA 5,000 New Jersey Builders
(AMBAC), 5%, 6/15/13 4,506,800
Aaa AAA 2,225 University of Medicine and
Dentistry Certificates of
Participation, (MBIA),
6.75%, 12/01/09 2,359,590
------------
$ 23,601,557
------------
INSURED SOLID WASTE - 0.5%
Aaa AAA $ 2,000 The Mercer County
Improvement Authority,
Solid Waste Revenue,
(AMT), (FGIC), 6.70%,
4/01/13 $ 2,118,200
------------
INSURED SPECIAL TAX - 0.8%
Aaa AAA $ 3,375 New Jersey Economic
Development Authority,
Market Transition
Facility, (MBIA), 5.875%,
7/01/11 $ 3,386,914
------------
INSURED TRANSPORTATION - 4.1%
Aaa AAA $ 2,000 The Delaware River and Bay
Authority, (MBIA), 4.75%,
1/01/24 $ 1,660,900
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 5,000 New Jersey Turnpike
Authority "RITES", (MBIA),
Variable, 1/01/16 (1) 5,744,000
Aaa AAA 8,450 New Jersey Turnpike
Authority, (MBIA), 6.50%,
1/01/16 9,162,335
------------
$ 16,567,235
------------
INSURED UTILITIES - 3.9%
Aaa AAA $ 2,750 New Jersey Economic
Development Authority, New
Jersey American Water Co.,
(AMT), (FGIC), 6.875%,
11/01/34 $ 2,912,058
Aaa AAA 13,500 Salem County, Public
Service Electric and Gas,
(MBIA), 5.55%, 11/01/33 12,629,790
------------
$ 15,541,848
------------
INSURED WATER & SEWER - 5.0%
Aaa AAA $ 6,500 Landis New Jersey Sewerage
Authority, Linked "CARS"
(FGIC), 5.65%, 9/19/19 $ 6,248,970
Aaa AAA 2,500 Middlesex County Utilities
Authority, Sewer Revenue,
(MBIA), Variable, 8/15/10
(1) 2,645,425
Aaa AAA 2,000 Township of Monroe, New
Jersey Municipal Utilities
Authority, (MBIA), 5.50%,
2/01/17 1,882,380
Aaa AAA 1,250 New Jersey Economic
Development Authority,
Middlesex Water Company,
(AMBAC), 5.20%, 10/01/22 1,107,550
Aaa AAA 1,650 New Jersey Economic
Development Authority,
Hackensack Water Company,
(MBIA), 5.80%, 3/01/24 1,607,248
Aaa AAA 1,270 Passaic Valley Water
Commissioners, (FGIC),
5.00%, 12/15/22 1,100,214
Aaa AAA 6,130 West New York, New Jersey
Municipal Utilities
Authority, (FGIC), 5.125%,
12/15/17 5,480,772
------------
$ 20,072,559
------------
LEASE/CERTIFICATE OF
PARTICIPATION - 3.7%
Baa1 A- $ 720 County of Atlantic, New
Jersey Public Facilities
Lease Agreement, 8.875%,
1/15/14 $ 929,902
Baa1 A- 785 County of Atlantic, New
Jersey Public Facilities
Lease Agreement, 8.875%,
1/15/15 1,015,043
A1 NR 1,000 Township of Bedminster,
Board of Education,
7.125%, 9/01/10 1,092,370
</TABLE>
46
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
LEASE/CERTIFICATE OF PARTICIPATION -
(CONTINUED)
Aa AA- 1,000 Mercer County Improvement
Authority, Richard J.
Hughes Justice Complex,
6.05%, 1/01/14 1,000,510
Aa AA- 2,000 Mercer County Improvement
Authority, Richard J.
Hughes Justice Complex,
6.05%, 1/01/15 2,001,020
Aa AA- 1,500 Mercer County Improvement
Authority, Richard J.
Hughes Justice Complex,
6.05%, 1/01/16 1,500,465
Aa AA- 1,500 Mercer County Improvement
Authority, Richard J.
Hughes Justice Complex,
6.05%, 1/01/17 1,500,465
Aa AA- 5,420 New Jersey Building
Authority, 5.00%, 6/15/16 4,785,210
NR A+ 1,000 New Jersey Economic
Development Authority,
Performing Arts Center
Site Acquisition, 6.75%,
6/15/12 1,049,580
------------
$ 14,874,565
------------
MISCELLANEOUS - 4.0%
A1 A+ $ 1,650 New Jersey Economic
Development Authority,
Economic Recovery Fund,
0%, 9/15/09 $ 727,089
A1 A+ 5,500 New Jersey Economic
Development Authority,
Economic Recovery Fund,
0%, 3/15/13 1,911,525
NR NR 7,600 New Jersey Sports and
Exposition Authority,
Monmouth Park, 8.00%,
1/01/25 8,251,167
Aa NR 6,000 New Jersey Sports and
Exposition Authority,
5.20%, 1/01/20 5,318,580
------------
$ 16,208,361
------------
SOLID WASTE - 6.8%
Ba NR $ 3,655 The Atlantic County
Utilities Authority, Solid
Waste Revenue, 7.125%,
3/01/16 $ 3,641,001
Ba BBB+ 6,125 Pollution Control
Financing Authority of
Camden County, (AMT),
7.50%, 12/01/09 6,237,639
Ba NR 5,975 Mercer County Improvement
Authority, Solid Waste
System Revenue, (AMT), 0%,
4/01/14 1,548,003
Ba NR 6,000 Mercer County Improvement
Authority, Solid Waste
System Revenue, (AMT), 0%,
4/01/15 1,445,940
Ba NR 3,000 Mercer County Improvement
Authority, Solid Waste
System Revenue, (AMT), 0%,
4/01/16 672,510
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Ba NR 1,500 Passaic County Utilities
Authority Solid Waste
System Revenue, 7.00%,
11/15/07 1,485,795
NR A- 11,930 Union County, New Jersey
Utilities Authority, Solid
Waste Revenue, (AMT),
7.20%, 6/15/14 12,411,376
------------
$ 27,442,264
------------
SPECIAL TAX - 0.2%
Baa1 BBB+ $ 550 Puerto Rico Infrastructure
Financing Authority,
7.90%, 7/01/07 $ 607,574
------------
TRANSPORTATION - 15.1%
NR BBB $ 1,250 Guam Airport Authority,
(AMT), 6.60%, 10/01/10 $ 1,263,675
NR BBB 1,400 Guam Airport Authority,
6.50%, 10/01/23 1,390,886
NR BBB 2,000 Guam Airport Authority,
(AMT), 6.70%, 10/01/23 1,999,740
A1 AA- 3,705 The Port Authority of New
York and New Jersey,
5.25%, 7/15/14 3,396,706
A1 AA- 9,500 The Port Authority of New
York and New Jersey,
7.35%, 10/01/27 (2) 10,438,315
A1 AA- 2,645 The Port Authority of New
York and New Jersey,
6.75%, 8/01/26 2,792,194
A1 AA- 5,000 The Port Authority of New
York and New Jersey,
(AMT), 6.25%, 1/15/27 4,999,750
A1 AA- 9,000 The Port Authority of New
York and New Jersey,
6.125%, 6/01/94 8,962,560
A1 AA- 5,000 The Port Authority of New
York and New Jersey,
5.375%, 3/01/28 4,561,400
Baa1 BB 5,100 The Port Authority of New
York and New Jersey, Delta
Air Lines Inc., 6.95%,
6/01/08 5,356,428
Baa1 A 2,135 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/01/12 2,216,963
Baa1 A 3,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/01/21 2,638,110
Baa1 A 4,100 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/01/18 4,243,131
Baa3 BB+ 5,550 Puerto Rico Port
Authority, American
Airlines, (AMT), 6.30%,
6/01/23 5,386,553
</TABLE>
47
<PAGE>
-------
NEW JERSEY TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - (CONTINUED)
NR A+ 1,115 South Jersey Port
Corporation, New Jersey
Marine Terminal, 6.875%,
1/01/20 1,147,224
------------
$ 60,793,635
------------
UTILITY - 2.8%
NR BBB $ 100 Guam Power Authority,
5.25%, 10/01/13 $ 88,727
NR BBB 1,500 Guam Power Authority,
5.25%, 10/01/23 1,267,485
NR BBB 2,000 Guam Power Authority,
6.75%, 10/01/24 2,031,080
A3 BBB+ 625 New Jersey Economic
Development Authority,
Elizabethtown Gas Co.,
(AMT), 6.75%, 10/01/21 632,337
A2 A 1,455 New Jersey Economic
Development Authority,
Natural Gas Facilities,
(AMT), 7.05%, 3/01/16 1,542,387
Baa1 A- 460 Puerto Rico Electric Power
Authority, 7.125%, 7/01/14 498,801
NR NR 5,105 Virgin Islands Water and
Power Authority, Electric
System Revenue, 7.40%,
7/01/11 5,318,032
------------
$ 11,378,849
------------
WATER & SEWER - 2.5%
A1 AA- $ 2,000 Gloucester County
Utilities Authority,
6.50%, 1/01/21 $ 2,062,600
A3 A 3,250 New Jersey Economic
Development Authority,
Elizabethtown Water
Revenue, (AMT), 6.70%,
8/01/21 3,394,853
Aa AA 1,400 New Jersey Wastewater
Treatment Trust, 7.25%,
5/15/08 1,511,230
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA 1,000 New Jersey Wastewater
Treatment Trust, 6.875%,
6/15/09 1,090,310
Aa AA 250 New Jersey Wastewater
Treatment Trust, 7.00%,
6/15/10 273,342
Aa AA 1,000 New Jersey Wastewater
Treatment Trust, 6.00%,
7/01/10 1,022,020
A1 AA 500 The Somerset Raritan
Valley Sewerage Authority,
6.75%, 7/01/10 534,655
------------
$ 9,889,010
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $389,842,758) $403,485,415
----------
----------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by New Jersey
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 27.9% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.1% to 14.5% of total investments.
See notes to financial statements
48
<PAGE>
-------
Pennsylvania Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 5.3%
NR NR $12,000 Pennsylvania Economic
Development Authority,
Northampton Generating
Project, (AMT), 6.50%,
1/01/13 $ 11,599,320
NR BBB- 9,000 Pennsylvania Economic
Development Authority,
Colver Project, (AMT),
7.125%, 12/01/15 9,437,490
NR BBB- 5,000 Pennsylvania Economic
Development Authority,
Colver Project, (AMT),
7.15%, 12/01/18 5,212,250
------------
$ 26,249,060
------------
EDUCATION - 5.3%
NR BBB $ 4,865 Erie Higher Education
Building Authority,
Mercyhurst College, 5.75%,
3/15/20 $ 4,370,132
Baa1 NR 1,500 Latrobe, Saint Vincent
College, 6.75%, 5/01/24 1,535,460
NR AAA 2,000 Lehigh County, Allentown
College of St. Francis,
6.75%, 12/15/12 2,129,440
Aa AA 3,700 Pennsylvania, University
of Pennsylvania, 6.625%,
1/01/17 3,733,041
NR A- 4,225 Scranton-Lackawanna,
Pennsylvania University,
University of Scranton,
6.40%, 3/01/07 4,368,185
NR AA 9,700 Swarthmore Borough,
Swarthmore College, 6.00%,
9/15/20 9,649,366
------------
$ 25,785,624
------------
ESCROWED - 6.5%
Aaa AAA $ 5,600 Berks County, GO, (FGIC),
Variable, 11/15/20 (1) $ 6,412,000
Aaa A- 1,750 Chester County, HEFA, Bryn
Mar Hospitals, 6.75%,
7/01/14 1,990,468
Aaa AAA 3,195 Derry Township School
District, GO, (AMBAC),
6.20%, 9/01/08 3,430,951
Aaa AAA 2,000 Doylestown Hospital
Authority, Doylestown
Hospital, (AMBAC), 6.90%,
7/01/19 2,219,120
Aaa AAA 1,405 Lycoming County, GO,
(FGIC), 6.40%, 8/15/11 1,540,765
Aaa AAA 945 Lycoming County, GO,
(FGIC), 6.40%, 8/15/11 1,036,315
NR A- 1,000 Pennsylvania, HEFA,
Elizabeth College, 7.25%,
6/15/11 1,150,140
NR A- 6,900 Pennsylvania IDA, Economic
Development, 7.00%,
1/01/11 7,853,649
NR A- 5,155 Philadelphia, Hospital and
Higher Education Facility
Authority, Presbyterian
Medical Center, 6.50%,
12/01/11 5,646,684
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 500 York County Hospital
Authority, York Hospital,
(AMBAC), 7.00%, 7/01/21 565,985
------------
$ 31,846,077
------------
GENERAL OBLIGATIONS - 4.8%
NR A $ 4,725 Chester Upland School
District, 6.375%, 9/01/12 $ 4,828,383
NR A 3,000 Chester Upland School
District, 6.375%, 9/01/21 3,038,070
A1 AA- 465 Commonwealth of
Pennsylvania, 6.75%,
1/01/07 498,182
A1 AA- 500 Commonwealth of
Pennsylvania, 6.75%,
1/01/08 534,465
A1 AA- 5,435 Commonwealth of
Pennsylvania, 6.50%,
11/01/09 5,729,251
A1 AA- 2,000 Commonwealth of
Pennsylvania, 6.375%,
9/15/12 2,074,740
NR A 3,000 Dauphin County, 6.90%,
6/02/26 3,166,320
A1 A+ 2,050 Lower Providence Township
Sewer Authority
Guaranteed, 6.75%, 5/01/22 2,142,066
NR A 1,950 McKeesport Area School
District, 5.00%, 4/01/13 1,741,194
------------
$ 23,752,671
------------
HOSPITALS - 22.6%
NR AAA $ 2,470 Allegheny County, IDA,
Presbyterian Medical
Center, 6.75%, 2/01/26 $ 2,548,842
NR A- 4,000 Butler County IDA,
Sherwood Oaks, 5.75%,
6/01/16 3,588,520
NR AA- 12,000 Chester County, HEFA,
(Main Line Health System),
5.50%, 5/15/15 11,139,000
Baa BBB 2,000 Dauphin County Hospital
Authority, Community
General Osteopathic
Hospital, 7.375%, 6/01/16 2,085,880
NR A- 10,250 Delaware County, Riddle
Memorial Hospital, 6.50%,
1/01/22 9,813,863
NR NR 4,755 Hazelton Luzerne County,
Saint Joseph Medical
Center, 8.375%, 7/01/12 4,892,895
Baa1 NR 2,670 Indiana County Hospital
Authority, Indiana
Hospital, 7.125%, 7/01/23 2,689,838
NR BBB+ 3,500 Lebanon County, Good
Samaritan Hospital, 6.00%,
11/15/18 3,148,285
Baa1 A 3,250 Lehigh County, Muhlenberg
Hospital, 6.60%, 7/15/22 3,233,620
NR BBB- 5,405 McKean County Hospital
Authority, Bradford
Hospital, 6.10%, 10/01/20 4,591,115
</TABLE>
49
<PAGE>
-------
PENNSYLVANIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - (CONTINUED)
NR BBB+ 2,615 Montgomery County,
Pottstown Medical Center,
6.875%, 11/15/20 2,597,558
A1 A+ 500 PA Hospital and Higher
Education Facility
Authority, Allegheny
General Hospital, 7.25%,
9/01/17 536,535
A BBB+ 8,500 PA Hospital and Higher
Education Facility
Authority, Albert Einstein
Medical Center, 7.625%,
4/01/11 9,054,965
Baa1 BBB+ 12,800 PA Hospital and Higher
Education Facility
Authority, Graduate Health
System, 6.625%, 7/01/21 12,228,480
Aa AA 4,500 PA Hospital and Higher
Education Facility
Authority, Children's
Hospital, 5.50%, 2/15/22 4,125,060
Baa1 A- 10,515 PA Hospital and Higher
Education Facility
Authority, Temple
University Hospital,
6.625%, 11/15/23 10,517,418
Aa AA 10,200 PA Hospital and Higher
Education Facility
Authority, Children's
Hospital, 5.00%, 2/15/21 8,745,276
Aa NR 4,750 Pottsville, Hospital
Authority, Daughters of
Charity, 5.00%, 8/15/12 4,238,093
Baa NR 4,115 Somerset County, Hospital
Authority, Somerset
County, Somerset Community
Hospital Project, 6.750%,
3/01/11 3,950,359
A NR 7,000 Washington County,
Hospital Authority,
Monongahela Valley
Hospital, 6.75%, 12/01/08 7,324,310
------------
$111,049,912
------------
HOUSING - 12.3%
NR AAA $ 1,000 Bucks County, Mortgage
Revenue Bonds, Warminster
Heights Project, Section
8-A, 6.80%, 8/01/12 $ 1,029,520
NR NR 2,680 Chester County, IDA,
8.05%, 1/01/24 2,688,120
A1 A+ 3,000 Pennsylvania HFA MF,
7.60%, 7/01/13 3,210,330
Aaa NR 3,000 Philadelphia Redevelopment
Authority, MF, 6.95%,
5/15/24 3,102,450
Aaa NR 2,175 Allegheny County
Residential Finance
Authority, SFMR, (GNMA),
7.15%, 6/01/17 2,212,410
Aa AA 5,700 Pennsylvania HFA SFMR,
(AMT), 6.75%, 4/01/16 5,816,451
Aa AA 3,730 Pennsylvania HFA SFMR,
6.90%, 4/01/17 3,834,627
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA 4,000 Pennsylvania HFA SFMR,
6.85%, 4/01/16 4,099,080
Aa AA 300 Pennsylvania HFA SFMR,
7.40%, 10/01/09 313,026
Aa AA 770 Pennsylvania HFA SFMR,
7.20%, 10/01/11 809,124
Aa AA 695 Pennsylvania HFA SFMR,
7.375%, 10/01/16 720,048
Aa AA 1,000 Pennsylvania HFA SFMR,
(AMT), Variable, 10/01/23
(1) 1,059,990
Aa AA 5,500 Pennsylvania HFA SFMR,
(AMT), 6.85%, 4/01/25 5,637,280
Aa AA 8,350 Pennsylvania HFA SFMR,
(AMT), 7.50%, 10/01/25 8,868,034
Aa AA 10,000 Pennsylvania HFA SFMR,
(AMT), 6.65%, 10/01/21 10,177,400
A1 A 4,235 Urban Redevelopment
Authority of Pittsburgh
Mortgage Revenue Bonds,
(AMT), 7.10%, 4/01/24 4,259,563
A1 A 265 Urban Redevelopment
Authority of Pittsburgh,
7.45%, 4/01/10 278,663
A1 A 1,000 Urban Redevelopment
Authority of Pittsburgh
Mortgage Revenue Bonds,
7.125%, 4/01/15 1,040,790
A1 A 1,055 Urban Redevelopment
Authority of Pittsburgh
Mortgage Revenue Bonds,
(AMT), 7.40%, 4/01/24 1,096,630
------------
$ 60,253,536
------------
INDUSTRIAL DEVELOPMENT
AUTHORITY - 8.7%
A3 A $ 6,950 Butler County IDA,
Witco Corporation Project,
5.85%, 12/01/23 $ 6,573,449
NR BBB 1,005 Clearfield County IDA,
Kmart Corporation,
6.80%, 5/15/07 1,030,095
NR A+ 4,000 Franklin County IDA,
Corning Incorporated,
6.25%, 8/01/05 4,206,280
NR AAA 8,750 Mercer County IDA,
Hillcrest Nursing Center,
0%, 1/15/13 2,475,375
A2 A 12,000 New Morgan IDA, New Morgan
Landfill, (AMT), 6.50%,
4/01/19 12,155,040
Baa2 BBB- 5,000 Pennsylvania, IDA,
Macmilliam Project, (AMT),
7.60%, 12/01/20 5,385,950
Baa1 BBB+ 4,450 Pennsylvania, IDA, Sun
Company Project, (AMT),
7.60%, 12/01/24 4,807,868
A2 A 6,025 Washington County IDA,
West Penn Power, 6.05%,
4/01/14 5,964,630
------------
$ 42,598,687
------------
</TABLE>
50
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED AIRPORTS - 1.2%
Aaa AAA $ 6,000 Philadelphia Airport,
(AMBAC), (AMT), 6.00%,
6/15/15 $ 5,903,760
------------
INSURED EDUCATION - 1.1%
Aaa AAA $ 2,500 Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), 7.15%, 9/01/21 $ 2,639,200
Aaa AAA 1,500 Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), Variable, 3/01/22
(1) 1,441,965
Aaa AAA 700 Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), Variable, 9/01/26
(1) 744,744
Aaa AAA 800 Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), 6.40%, 3/01/22 808,712
------------
$ 5,634,621
------------
INSURED GENERAL OBLIGATION - 3.0%
Aaa AAA $ 1,750 Deer Lakes School
District, (MBIA), 6.45%,
1/15/19 $ 1,792,210
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/01/20 454,701
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/01/21 427,230
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/01/22 401,407
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/01/23 377,168
Aaa AAA 4,345 Elizabeth Forward School
District, (MBIA), 0%,
9/01/24 709,582
Aaa AAA 1,460 Haverford School District,
(FGIC), 6.125%, 6/01/14 1,477,199
Aaa AAA 4,500 Keystone Oaks School
District, (AMBAC),
Variable,
9/01/16 (1) 4,348,170
Aaa AAA 1,430 Mars Area School District,
(MBIA), 0%, 3/01/14 474,245
Aaa AAA 655 Rochester Area School
District, (AMBAC), 0%,
5/01/10 278,703
Aaa AAA 2,795 Venango County, (AMBAC),
6.30%, 12/01/19 2,850,453
Aaa AAA 1,000 West Allegheny County
School District, (AMBAC),
6.60%, 2/01/09 1,034,210
------------
$ 14,625,278
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITAL - 7.1%
Aaa AAA $ 1,170 Allegheny County,
Children's Hospital of
Pittsburgh, (MBIA), 6.75%,
7/01/08 $ 1,234,175
Aaa AAA 3,750 Allegheny County, Magee-
Womens Hospital, (FGIC),
0%, 10/01/15 1,114,425
Aaa AAA 1,400 Armstrong County Saint
Francis Health Care,
(AMBAC), 6.25%, 6/01/13 1,430,296
Aaa AAA 2,500 Armstrong County Saint
Francis Health Care,
(AMBAC), 6.00%, 8/15/08 2,557,425
Aaa AAA 4,400 Bucks County, IDA, Grand
View Hospital, (AMBAC),
5.25%, 7/01/21 3,889,864
Aaa AAA 775 Carbon County, Gnaden
Memorial Hospital,
(AMBAC), 7.00%, 11/15/14 825,243
Aaa AAA 750 Erie County Hospital
Authority, Harlot Medical
Center, (AMBAC), 7.10%,
2/15/10 811,313
Aaa AAA 230 Lehigh County Health East,
Incorporated, (MBIA),
7.00%, 7/01/15 244,801
Aaa AAA 5,000 Lehigh County, St. Luke's
Hospital, (AMBAC), 6.25%,
7/01/22 5,091,850
Aaa AAA 1,000 Montgomery County,
Abington Memorial
Hospital, (AMBAC),
Variable,
6/01/11 (1) 1,111,250
Aaa AAA 5,000 Philadelphia Hospital and
Higher Education,
Pennsylvania Hospital,
(FGIC), Variable, 2/15/12
(1) 4,368,500
Aaa AAA 3,500 Sayre Health Care
Facilities Authority,
Guthrie Healthcare System,
(AMBAC), 6.00%, 3/01/21 3,490,690
Aaa AAA 1,500 Scranton-Lackawanna, Mercy
Health Systems, (MBIA),
6.90%, 1/01/23 1,577,370
Aaa AAA 7,500 Washington County,
Shadyside Hospital,
(AMBAC), 5.75%, 12/15/14 7,277,924
------------
$ 35,025,126
------------
INSURED LEASE - 4.1%
Aaa AAA $ 4,595 Harrisburg Authority,
Dauphin County, Lease
Revenue, (CGIC), 6.25%,
6/01/10 $ 4,904,335
Aaa AAA 3,000 Northumberland County,
Lease Revenue, (MBIA), 0%,
10/15/12 1,109,040
Aaa AAA 5,600 Philadelphia Muni
Authority, Lease Revenue,
(FGIC), 5.625%, 11/15/18 5,317,592
</TABLE>
51
<PAGE>
-------
PENNSYLVANIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LEASE - (CONTINUED)
Aaa AAA 10,000 Commonwealth of
Pennsylvania, Lease
Revenue, (AMBAC), 5.00%,
7/01/15 8,751,600
------------
$ 20,082,567
------------
INSURED UTILITIES - 3.9%
Aaa AAA $ 4,000 Beaver County IDA, Ohio
Edison Company, (FGIC),
7.00%, 6/01/21 $ 4,270,880
Aaa AAA 10,000 Beaver County IDA, Ohio
Edison Company, (FGIC),
7.05%, 10/01/20 10,708,500
Aaa AAA 3,800 Puerto Rico Electric Power
Authority, (FSA),
Variable, 7/01/02 (1) 4,116,578
------------
$ 19,095,958
------------
INSURED WATER & SEWER - 6.2%
Aaa AAA $ 2,750 Allegheny County, Sewer
Revenue, (FGIC), 0%,
12/01/08 $ 1,296,845
Aaa AAA 9,000 Bethlehem Authority,
Northampton and Lehigh
Counties, Water Revenue
Bonds, (MBIA), 4.875%,
11/15/14 7,805,070
Aaa AAA 2,500 City of Philadelphia,
Water and Wastewater,
(FGIC), Variable, 6/15/12
(1) 2,350,000
Aaa AAA 9,000 City of Philadelphia,
Water and Wastewater,
(CGIC), 5.50%, 6/15/15 8,441,280
Aaa AAA 2,460 City of Philadelphia,
Water and Wastewater,
(CGIC), 5.00%, 6/15/16 2,145,440
Aaa AAA 8,920 City of Philadelphia,
Water and Wastewater,
(MBIA), 5.60%, 8/01/18 8,435,555
------------
$ 30,474,190
------------
MISCELLANEOUS - 3.8%
NR AA $ 870 Pennsylvania
Infrastructure Investment
Authority, Pennvest,
6.80%, 9/01/10 $ 922,487
NR A 16,950 Pennsylvania Finance
Authority, Beaver County,
6.60%, 11/01/09 17,744,277
------------
$ 18,666,764
------------
NURSING HOMES - 1.3%
NR NR $ 3,500 Montgomery County IDA,
Geriatric Health Care
Institute, 8.375%, 7/01/23 $ 3,493,910
NR NR 1,460 Westmoreland County IDA,
Highland Health System,
9.25%, 6/01/22 1,517,860
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 1,190 Philadelphia Hospital and
Higher Education
Facilities Authority,
Philadelphia Protestant,
8.625%, 7/01/21 1,200,995
------------
$ 6,212,765
------------
SPECIAL TAX REVENUE - 0.1%
Baa1 BBB+ $ 500 Puerto Rico Special Tax
Revenue, 7.50%, 7/01/09 $ 535,485
------------
TRANSPORTATION - 0.3%
Baa1 A $ 1,500 Puerto Rico Commonwealth
Highway, 5.50%, 7/01/13 $ 1,415,115
------------
UTILITIES - 2.2%
Baa3 BB+ $ 500 Beaver County, IDA, Ohio
Edison Company, 7.75%,
9/01/24 $ 524,550
Baa1 BBB+ 3,250 Delaware County, IDA,
Philadelphia Electric
Company, 7.375%, 4/01/21 3,462,745
Baa1 BBB+ 4,070 Montgomery County, IDA,
Philadelphia Electric
Company, (AMT), 7.60%,
4/01/21 4,337,358
Baa1 A- 3,370 Puerto Rico Electric Power
Authority Power Revenue,
0%, 7/01/17 863,866
NR NR 1,500 Virgin Islands Water and
Power Authority, 7.40%,
7/01/11 1,562,595
------------
$ 10,751,114
------------
WATER & SEWER REVENUE - 0.2%
Baa1 A $ 1,000 Puerto Rico Aqueduct and
Sewer Authority, 7.90%,
7/01/07 $ 1,109,020
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $477,086,127) $491,067,330
----------
----------
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio primarily invests in debt securities issued by Pennsylvania
municipalities. The ability of the issuers of debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 28.3% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.4% to 11.5% of total investments.
See notes to financial statements
52
<PAGE>
-------
Texas Tax Free Portfolio
Portfolio of Investments - July 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 3.7%
A NR $ 700 Brazos Higher Education
Authority, Texas Student
Loan Subordinate, 6.50%,
6/01/04 $ 727,524
Aa1 AA 250 University of Texas, 6.75%,
8/15/13 (1) 267,055
-----------
$ 994,579
-----------
ELECTRIC UTILITIES - 1.6%
NR BBB $ 500 Guam Power Authority,
5.25%, 10/01/23 $ 422,495
-----------
ESCROWED - 3.6%
Baa1 BBB $ 200 Bexar County, Texas, St.
Luke's Lutheran Hospital,
7.00%, 5/01/21 $ 227,466
Aaa NR 1,000 Central Texas Housing
Corporation Single Family,
0%, 9/01/16 270,510
Aaa AAA 85 Harris County Texas Toll
Road Unlimited Tax and
Subordinate Lien (AMBAC),
6.625%, 8/15/17 90,796
Aaa AAA 200 Montgomery County, Texas
Hospital District (FSA),
6.625%, 4/01/17 224,720
Aaa AAA 150 Texas National Research Lab
Super Collider, 6.95%,
12/01/12 167,802
-----------
$ 981,294
-----------
GENERAL OBLIGATIONS - 16.8%
Aaa AAA $1,000 Bastrop, Texas Independent
School District U.T.G.O.
(PSF), 0.00%, 2/15/13 $ 349,880
Aaa NR 500 Crandall, Texas Independent
School District U.T.G.O.
(PSF), 6.00%, 2/15/24 495,935
Aaa AAA 1,000 Cypress-Fairbanks, Texas
Independent School District
U.T.G.O. (PSF), 5.25%,
2/15/19 904,900
Aaa AAA 550 Grand Prairie, Texas
Independent School District
U.T.G.O. (PSF), 0%, 2/15/12 202,680
Aaa AA+ 350 Irving, Texas L.T.G.O.
4.875%, 9/15/14 (1) 309,544
Aaa AAA 1,000 Round Rock, Texas
Independent School District
U.T.G.O. (PSF), 5.50%,
8/01/15 948,900
Aa AA 250 Texas Veterans' Housing
Assistance U.T.G.O. (AMT),
6.45%, 6/01/23 247,420
Aa AA 690 Texas Veterans' Housing
Assistance U.T.G.O. (AMT),
6.70%, 12/01/24 697,321
Aa AA 395 Texas Veterans' Housing
Assistance U.T.G.O. (AMT),
6.80%, 12/01/23 401,980
-----------
$ 4,558,560
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - 1.9%
NR NR $ 500 Bell County, Texas HFC
Elder Care Facilities,
9.00%, 11/01/24 $ 523,725
-----------
HOSPITALS - 11.1%
NR BBB $ 500 Denison, Texas, Texoma
Medical Center, 7.10%,
8/15/24 $ 502,255
A A- 100 Ector County, Texas
Hospital District, 7.30%,
4/15/12 105,170
A A- 100 Harris County, Texas
Hospital District, 7.125%,
6/01/15 104,750
A A- 1,100 Harris County, Texas
Hospital District, Memorial
Hospital System, 6.625%,
6/01/24 1,114,696
Aa AA 250 McAllen Health Facilities,
Texas, Sisters of Mercy,
5.00%, 6/01/15 220,160
A1 NR 1,000 Tarrant County, Texas,
Methodist Health System,
6.00%, 9/01/24 971,830
-----------
$ 3,018,861
-----------
HOUSING - 4.2%
Aa NR $ 400 Kaufman, Texas HDC
Multifamily (FHA) Section
8, 6.00%, 2/01/22 $ 377,764
NR A 750 Travis County, Texas HFC
Multifamily Travis Station
Apartments, 6.75%, 4/01/19 762,435
-----------
$ 1,140,199
-----------
INDUSTRIAL DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - 7.0%
Baa1 BBB $ 450 Gulf Coast, Texas Waste
Disposal Authority,
Champion International
(AMT), 7.25%, 4/01/17 $ 481,401
A2 A+ 1,000 Port Corpus Christi, Texas,
Hoechst Celanese
Corporation, 6.875%,
4/01/17 1,048,690
Baa2 BBB 400 West Side Calhoun County
Navigation District, Texas,
Union Carbide (AMT), 6.40%,
5/01/23 380,572
-----------
$ 1,910,663
-----------
INSURED EDUCATION - 0.4%
Aaa AAA $ 100 Southwest, Texas, Southern
Methodist University
(FGIC), 6.375%, 10/01/13 $ 104,393
-----------
INSURED ELECTRIC UTILITIES - 14.5%
Aaa AAA $1,000 Austin, Texas Utility
System (FGIC), 6.25%,
5/15/16 $ 1,020,160
Aaa AAA 250 Brazos River Authority,
Texas, Houston Lighting and
Power Company (FGIC),
7.20%, 12/01/18 267,497
</TABLE>
53
<PAGE>
-------
TEXAS TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED ELECTRIC UTILITIES -
(CONTINUED)
Aaa AAA 75 Brazos River Authority,
Texas, Houston Light and
Power (AMBAC), 6.70%,
3/01/17 78,424
Aaa AAA 1,050 Corpus Christi, Texas
Utility System (MBIA),
5.20%, 7/15/13 960,561
Aaa AAA 500 Lower Colorado River
Authority Junior Lien,
Texas (FGIC), 0%, 1/01/12 183,855
Aaa AAA 605 Montgomery County, Texas
MUD #47 Water & Sewer
(AMBAC), 6.125%, 10/01/20 607,432
Aaa AAA 100 Sabine River Authority,
Texas, Utilities Electric
Company (FGIC), 6.55%,
10/01/22 103,182
Aaa AAA 1,395 Texas Municipal Power
Agency (MBIA), 0%, 9/01/13 463,405
Aaa AAA 1,000 Texas Municipal Power
Agency (MBIA), 0%, 9/01/17 254,790
-----------
$ 3,939,306
-----------
INSURED GENERAL OBLIGATION - 1.9%
Aaa AAA $ 100 Brownsville, Texas
Navigation District
(AMBAC), 6.25%, 3/01/14 $ 102,245
Aaa AAA 500 Ector County, Texas G.O.
(AMBAC), 4.25%, 2/15/10 426,335
-----------
$ 528,580
-----------
INSURED HOSPITAL - 6.6%
Aaa AAA $ 250 Coastal Bend, Texas HFC
Incarnate Word Health
Services (AMBAC), 6.30%,
1/01/17 $ 254,058
Aaa AAA 500 Harris County, Texas HFC
Hermann Hospital (MBIA),
6.375%, 10/01/24 (1) 507,320
Aaa AAA 1,000 Tyler County, Texas HFC
Mother Frances Hospital
(FGIC), 6.50%, 7/01/22 1,029,190
-----------
$ 1,790,568
-----------
INSURED LEASE/COP - 1.7%
Aaa AAA $ 500 East Texas Jails, Angelina
County Project (MBIA),
5.25%, 5/01/14 $ 459,665
-----------
INSURED TRANSPORTATION - 12.0%
Aaa AAA $ 500 Dallas-Fort Worth
International Airport,
Texas (MBIA), 6.00%,
11/01/12 $ 504,175
Aaa AAA 500 Dallas-Fort Worth
International Airport,
Texas (FGIC), 5.625%,
11/01/15 475,890
Aaa AAA 500 Harris County, Texas Toll
Road Senior Lien (AMBAC),
5.30%, 8/15/13 465,385
Aaa AAA 2,000 Harris County, Texas Toll
Road Subordinate Lien
(FGIC), 5.375%, 8/15/20 1,819,820
-----------
$ 3,265,270
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED WATER & SEWER - 1.7%
Aaa AAA $ 520 Tarrant County, Texas Water
and Improvement District
Number One (AMBAC), 4.75%,
3/01/12 $ 450,819
-----------
LEASE/COP - 0.9%
NR BBB- $ 250 Rio Grande, Texas
Independent School District
Lease, 6.75%, 7/15/10 $ 241,558
-----------
MISCELLANEOUS - 5.9%
Baa2 BB+ $ 505 Alliance Airport Authority,
Texas, American Airlines,
7.50%, 12/01/29 $ 524,180
Aaa AAA 1,000 Austin, Texas Hotel
Occupancy Tax Revenue,
5.125% (AMBAC), 11/15/19 882,970
NR NR 250 Retama Development, Texas,
Retama Racetrack, 8.75%,
12/15/18 200,000
-----------
$ 1,607,150
-----------
TRANSPORTATION - 3.7%
Ba1 BB $ 235 Dallas-Fort Worth Texas
Airport, Delta Airlines
(AMT), 7.125%, 11/01/26 $ 239,872
Baa2 BB+ 225 Dallas-Fort Worth Texas
Airport, Delta Airlines
(AMT), 7.50%, 11/01/25 233,986
NR BBB 255 Guam Airport Authority
(AMT), 6.70%, 10/01/23 254,967
Aa AA 25 Harris County, Texas Toll
Road, Subordinate Lien,
6.75%, 8/01/14 26,726
Baa3 BB+ 250 Puerto Rico Ports
Authority, American
Airlines (AMT), 6.30%,
6/01/23 242,637
-----------
$ 998,188
-----------
WATER & SEWER REVENUE - 0.8%
Aa AA $ 250 Dallas, Texas Water and
Sewer, 5.00%, 4/01/09 $ 236,018
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $26,750,393) $27,171,891
---------
---------
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Texas
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 55.3% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 0.8% to
18.4% of total investments.
See notes to financial statements
54
<PAGE>
-------
Tax Free Portfolios
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $140,218,111 $44,277,269 $192,808,845 $182,066,681
Unrealized appreciation (depreciation) 3,828,622 1,159,426 (1,554,336 ) 4,460,215
------------ ----------- ------------ ------------
Total investments, at value (Note 1A) $144,046,733 $45,436,695 $191,254,509 $186,526,896
Cash 426 687,824 1,592,566 2,048,393
Receivable for investments sold -- 35,463 -- 800,000
Interest receivable 1,411,599 596,740 2,509,768 2,949,373
Deferred organization expenses (Note 1D) 4,476 1,464 6,823 6,501
------------ ----------- ------------ ------------
Total assets $145,463,234 $46,758,186 $195,363,666 $192,331,163
------------ ----------- ------------ ------------
LIABILITIES:
Payable for when issued securities (Note 1F) $ -- $ 658,200 $ -- $ 964,896
Payable for daily variation margin on open financial
futures contracts (Note 1E) 33,469 20,719 77,031 99,875
Demand note payable (Note 5) 903,000 -- -- --
Payable to affiliates --
Trustees' fees 669 135 919 889
Custodian fees 2,924 639 3,823 --
Accrued expenses 2,157 1,327 6,104 2,522
------------ ----------- ------------ ------------
Total liabilities $ 942,219 $ 681,020 $ 87,877 $ 1,068,182
------------ ----------- ------------ ------------
Net Assets applicable to investors' interest in
Portfolio $144,521,015 $46,077,166 $195,275,789 $191,262,981
============ =========== ============ ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $140,643,966 $44,887,762 $196,718,666 $186,667,067
Unrealized appreciation (depreciation) of investments
and financial futures contracts (computed on the
basis of
identified cost) 3,877,049 1,189,404 (1,442,877 ) 4,595,914
------------ ----------- ------------ ------------
Total $144,521,015 $46,077,166 $195,275,789 $191,262,981
============ =========== ============ ============
</TABLE>
See notes to financial statements
55
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $78,851,048 $389,842,758 $477,086,127 $26,750,393
Unrealized appreciation 2,570,065 13,642,657 13,981,203 421,498
----------- ------------ ------------ -----------
Total investments, at value (Note 1A) $81,421,113 $403,485,415 $491,067,330 $27,171,891
Cash 400,411 1,075,446 4,181,885 1,058,371
Receivable for investments sold -- 3,861,470 30,000 --
Interest receivable 1,168,552 5,337,412 6,962,611 472,632
Receivable from the Investment Adviser (Note 2) -- -- -- 18,606
Deferred organization expenses (Note 1D) 2,508 11,270 13,558 1,415
----------- ------------ ------------ -----------
Total assets $82,992,584 $413,771,013 $502,255,384 $28,722,915
----------- ------------ ------------ -----------
LIABILITIES:
Payable for investments purchased $ -- $ 2,654,715 $ -- $ 479,270
Payable for daily variation margin on open financial
futures contracts (Note 1E) 21,250 66,406 -- 14,875
Payable to affiliates --
Trustees' fees 540 1,406 1,713 137
Custodian fees 1,572 5,883 -- 211
Accrued expenses 1,526 4,181 3,367 1,401
----------- ------------ ------------ -----------
Total liabilities $ 24,888 $ 2,732,591 $ 5,080 $ 495,894
----------- ------------ ------------ -----------
Net Assets applicable to investors' interest in
Portfolio $82,967,696 $411,038,422 $502,250,304 $28,227,021
============ ============== =============== ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $80,383,134 $397,350,461 $488,269,101 $27,771,750
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of
identified cost) 2,584,562 13,687,961 13,981,203 455,271
----------- ------------ ------------ -----------
Total $82,967,696 $411,038,422 $502,250,304 $28,227,021
============ ============== =============== ============
</TABLE>
See notes to financial statements
56
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $ 9,380,468 $ 2,916,273 $12,024,017 $12,313,929
----------- ----------- ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 629,148 $ 128,496 $ 835,605 $ 856,258
Compensation of Trustees not members of the Investment
Adviser's organization (Note 2) 9,186 1,335 17,185 11,255
Custodian fees (Note 2) 65,302 16,604 48,135 1,944
Interest expense (Note 5) 24,478 7,980 55,056 19,364
Legal and accounting services 23,018 20,942 27,771 26,172
Bond pricing 11,371 7,911 15,577 14,364
Amortization of organization expenses (Note 1D) 1,793 637 2,620 2,493
Printing and postage 200 -- 552 --
Registration costs 125 125 125 125
Miscellaneous 4,266 1,133 15,780 4,161
----------- ----------- ----------- -----------
Total expenses $ 768,887 $ 185,163 $1,018,406 $ 936,136
Deduct reduction of investment adviser fee (Note 2) -- 69,064 -- --
----------- ----------- ----------- -----------
Net expenses $ 768,887 $ 116,099 $1,018,406 $ 936,136
----------- ----------- ----------- -----------
Net investment income $ 8,611,581 $ 2,800,174 $11,005,611 $11,377,793
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(4,877,347) $(1,800,477) $(2,556,284) $(3,817,102)
Financial futures contracts (995,149) (721,504) (2,778,750 ) (2,415,234)
----------- ----------- ----------- -----------
Net realized loss on investments $(5,872,496) $(2,521,981) $(5,335,034) $(6,232,336)
----------- ----------- ----------- -----------
Change in unrealized appreciation --
Investments $ 7,691,430 $ 2,725,487 $3,995,907 $ 6,667,070
Financial futures contracts 166,028 98,064 537,717 280,007
----------- ----------- ----------- -----------
Net unrealized appreciation of investments $ 7,857,458 $ 2,823,551 $4,533,624 $ 6,947,077
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments $ 1,984,962 $ 301,570 $ (801,410 ) $ 714,741
----------- ----------- ----------- -----------
Net increase in net assets from operations $10,596,543 $ 3,101,744 $10,204,201 $12,092,534
============ ============ ============== ============
</TABLE>
See notes to financial statements
57
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $ 5,259,766 $26,778,322 $33,140,571 $ 1,711,252
----------- ------------ ------------ -----------
Expenses --
Investment adviser fee (Note 2) $ 310,489 $ 1,944,340 $ 2,416,419 $ 56,319
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 5,240 14,740 20,013 1,753
Custodian fees (Note 2) 20,399 91,170 -- 7,834
Interest expense (Note 5) 18,478 38,870 11,820 3,559
Legal and accounting services 23,039 35,317 38,577 16,838
Bond pricing 11,391 18,054 15,974 8,533
Amortization of organization expenses (Note 1D) 1,018 4,464 5,278 605
Registration costs -- 125 125 125
Miscellaneous 2,379 8,434 8,815 208
----------- ------------ ------------ -----------
Total expenses $ 392,433 $ 2,155,514 $ 2,517,021 $ 95,774
----------- ------------ ------------ -----------
Deduct --
Reduction of investment adviser fee (Note 2) $ -- $ -- $ -- $ 56,319
Allocation of expenses to the Investment Adviser
(Note 2) -- -- -- 18,606
----------- ------------ ------------ -----------
Total $ -- $ -- $ -- $ 74,925
----------- ------------ ------------ -----------
Net expenses $ 392,433 $ 2,155,514 $ 2,517,021 $ 20,849
----------- ------------ ------------ -----------
Net investment income $ 4,867,333 $24,622,808 $30,623,550 $ 1,690,403
----------- ------------ ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(3,665,826) $(13,015,045) $(13,832,451) $ (610,466)
Financial futures contracts (1,549,418) (4,759,465 ) (6,462,533 ) (393,285)
----------- ------------ ------------ -----------
Net realized loss on investments $(5,215,244) $(17,774,510) $(20,294,984) $(1,003,751)
----------- ------------ ------------ -----------
Change in unrealized appreciation --
Investments $ 4,573,005 $15,570,319 $16,678,284 $ 1,169,634
Financial futures contracts 195,669 1,061,635 2,323,941 50,424
----------- ------------ ------------ -----------
Net unrealized appreciation of investments $ 4,768,674 $16,631,954 $19,002,225 $ 1,220,058
----------- ------------ ------------ -----------
Net realized and unrealized gain (loss) on
investments $ (446,570) $(1,142,556 ) $(1,292,759 ) $ 216,307
----------- ------------ ------------ -----------
Net increase in net assets from operations $ 4,420,763 $23,480,252 $29,330,791 $ 1,906,710
============ ============= =============== ============
</TABLE>
See notes to financial statements
58
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 8,611,581 $ 2,800,174 $11,005,611 $ 11,377,793
Net realized loss on investment transactions (5,872,496) (2,521,981) (5,335,034 ) (6,232,336)
Change in unrealized appreciation of investments 7,857,458 2,823,551 4,533,624 6,947,077
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 10,596,543 $ 3,101,744 $10,204,201 $ 12,092,534
------------ ------------ ------------ ------------
Capital transactions --
Contributions $ 21,272,707 $ 10,355,365 $25,911,862 $ 14,779,804
Withdrawals (41,416,595) (11,778,902) (32,878,239 ) (39,641,020)
------------ ------------ ------------ ------------
Decrease in net assets resulting from capital
transactions $(20,143,888) $ (1,423,537) $(6,966,377 ) $(24,861,216)
------------ ------------ ------------ ------------
Total increase (decrease) in net assets $ (9,547,345) $ 1,678,207 $ 3,237,824 $(12,768,682)
NET ASSETS:
At beginning of year 154,068,360 44,398,959 192,037,965 204,031,663
------------ ------------ ------------ ------------
At end of year $144,521,015 $ 46,077,166 $195,275,789 $191,262,981
============== ============= ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 4,867,333 $ 24,622,808 $ 30,623,550 $ 1,690,403
Net realized loss on investment transactions (5,215,244) (17,774,510) (20,294,984 ) (1,003,751)
Change in unrealized appreciation of investments 4,768,674 16,631,954 19,002,225 1,220,058
------------ ------------ ------------- -----------
Net increase in net assets from operations $ 4,420,763 $ 23,480,252 $ 29,330,791 $ 1,906,710
------------ ------------ ------------- -----------
Capital transactions --
Contributions $ 11,350,380 $ 43,487,001 $ 38,709,755 $ 4,736,724
Withdrawals (16,808,817) (79,782,847) (102,576,381 ) (6,005,420)
------------ ------------ ------------- -----------
Decrease in net assets resulting from capital
transactions $ (5,458,437) $(36,295,846) $(63,866,626 ) $(1,268,696)
------------ ------------ ------------- -----------
Total increase (decrease) in net assets $ (1,037,674) $(12,815,594) $(34,535,835 ) $ 638,014
NET ASSETS:
At beginning of year 84,005,370 423,854,016 536,786,139 27,589,007
------------ ------------ ------------- -----------
At end of year $ 82,967,696 $411,038,422 $502,250,304 $28,227,021
============= ============== =============== ============
</TABLE>
See notes to financial statements
59
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 6,694,909 $ 1,681,554 $ 8,098,918 $ 9,191,618
Net realized gain (loss) on investment
transactions (79,923) (238,197) 610,531 459,500
Change in unrealized depreciation of investments (11,906,679) (2,832,041) (15,885,963 ) (15,894,224)
------------ ----------- ------------ ------------
Net decrease in net assets from operations $ (5,291,693) $(1,388,684) $(7,176,514 ) $ (6,243,106)
------------ ----------- ------------ ------------
Capital transactions --
Contributions $ 49,588,326 $25,061,524 $55,286,988 $ 43,549,085
Withdrawals (23,767,597) (3,620,273) (15,920,869 ) (20,939,507)
------------ ----------- ------------ ------------
Increase in net assets resulting from capital
transactions $ 25,820,729 $21,441,251 $39,366,119 $ 22,609,578
------------ ----------- ------------ ------------
Total increase in net assets $ 20,529,036 $20,052,567 $32,189,605 $ 16,366,472
NET ASSETS:
At beginning of period 133,539,324 24,346,392 159,848,360 187,665,191
------------ ----------- ------------ ------------
At end of period $154,068,360 $44,398,959 $192,037,965 $204,031,663
============== ============ ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 3,534,268 $ 19,598,942 $25,052,308 $ 1,024,502
Net realized gain (loss) on investment transactions 361,104 1,931,832 (1,606,336 ) (193,762)
Change in unrealized depreciation of investments (6,315,849) (34,629,145) (41,094,537 ) (1,491,855)
----------- ------------ ------------ -----------
Net decrease in net assets from operations $(2,420,477) $(13,098,371) $(17,648,565) $ (661,115)
----------- ------------ ------------ -----------
Capital transactions --
Contributions $28,250,170 $ 95,610,275 $113,666,177 $14,312,043
Withdrawals (8,843,182) (52,334,675) (56,232,111 ) (2,091,287)
----------- ------------ ------------ -----------
Increase in net assets resulting from capital
transactions $19,406,988 $ 43,275,600 $57,434,066 $12,220,756
----------- ------------ ------------ -----------
Total increase in net assets $16,986,511 $ 30,177,229 $39,785,501 $11,559,641
NET ASSETS:
At beginning of period 67,018,859 393,676,787 497,000,638 16,029,366
----------- ------------ ------------ -----------
At end of period $84,005,370 $423,854,016 $536,786,139 $27,589,007
============ ============== =============== ============
</TABLE>
* For the ten months ended July 31, 1994 (Note 7).
See notes to financial statements
60
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 3,814,722 $ 529,081 $ 4,491,010 $ 5,803,151
Net realized gain (loss) on investment
transactions 2,843,057 (42,421) (369,709 ) (383,574)
Change in unrealized appreciation (depreciation)
of investments 5,331,763 1,030,366 8,422,527 9,602,839
------------ ----------- ------------ ------------
Net increase in net assets from operations $ 11,989,542 $ 1,517,026 $12,543,828 $ 15,022,416
------------ ----------- ------------ ------------
Capital transactions --
Contributions $148,348,087 $23,748,943 $187,818,789 $184,212,796
Withdrawals (26,898,325) (1,019,597) (40,614,277 ) (11,670,041)
------------ ----------- ------------ ------------
Increase in net assets resulting from capital
transactions $121,449,762 $22,729,346 $147,204,512 $172,542,755
------------ ----------- ------------ ------------
Total increase in net assets $133,439,304 $24,246,372 $159,748,340 $187,565,171
NET ASSETS:
At beginning of period 100,020 100,020 100,020 100,020
------------ ----------- ------------ ------------
At end of period $133,539,324 $24,346,392 $159,848,360 $187,665,191
============== ============ ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 1,988,776 $ 12,599,045 $16,036,467 $ 333,755
Net realized gain (loss) on investment transactions (249,985) 108,306 2,426,891 (68,370)
Change in unrealized appreciation (depreciation)
of investments 3,295,330 20,473,018 21,996,791 606,518
----------- ------------ ------------ -----------
Net increase in net assets from operations $ 5,034,121 $ 33,180,369 $40,460,149 $ 871,903
----------- ------------ ------------ -----------
Capital transactions --
Contributions $75,312,856 $409,889,770 $536,041,409 $19,000,571
Withdrawals (13,428,138) (49,493,372) (79,600,940 ) (3,943,128)
----------- ------------ ------------ -----------
Increase in net assets resulting from capital
transactions $61,884,718 $360,396,398 $456,440,469 $15,057,443
----------- ------------ ------------ -----------
Total increase in net assets $66,918,839 $393,576,767 $496,900,618 $15,929,346
NET ASSETS:
At beginning of period 100,020 100,020 100,020 100,020
----------- ------------ ------------ -----------
At end of period $67,018,859 $393,676,787 $497,000,638 $16,029,366
============ ============== =============== ============
</TABLE>
* For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
61
<PAGE>
-------
FINANCIAL STATEMENTS (Continued)
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA PORTFOLIO COLORADO PORTFOLIO
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
------------------------------- -------------------------------
JULY 31, JULY 31, SEPT. 30, JULY 31, JULY 31, SEPT. 30,
1995 1994* 1993** 1995 1994* 1993**
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS)++:
Net expenses 0.52% 0.46%+ 0.42% + 0.25% 0.02% + 0.06%+
Net investment income 5.81% 5.43%+ 5.46% + 6.05% 5.73% + 5.60%+
PORTFOLIO TURNOVER 22% 23% 107% 52% 23% 10%
NET ASSETS, end of period (000 omitted) $144,521 $154,068 $133,539 $46,077 $44,399 $24,346
</TABLE>
++The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and/or allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
Expenses 0.40% 0.35%+ 0.35%+
Net investment income 5.90% 5.40%+ 5.31%+
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT PORTFOLIO MICHIGAN PORTFOLIO
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
------------------------------- -------------------------------
JULY 31, JULY 31, SEPT. 30, JULY 31, JULY 31, SEPT. 30,
1995 1994* 1993** 1995 1994* 1993**
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS):
Net expenses 0.53% 0.47%+ 0.46% + 0.48% 0.47%+ 0.44% +
Net investment income 5.77% 5.40%+ 5.45% + 5.85% 5.48%+ 5.46% +
PORTFOLIO TURNOVER 29% 10% 10% 54% 45% 20%
NET ASSETS, end of period (000 omitted) $195,276 $192,038 $159,848 $191,263 $204,032 $187,665
+ Annualized.
* For the ten months ended July 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
62
<PAGE>
-------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<CAPTION>
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MINNESOTA PORTFOLIO NEW JERSEY PORTFOLIO
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
------------------------------- -------------------------------
JULY 31, JULY 31, SEPT. 30, JULY 31, JULY 31, SEPT. 30,
1995 1994* 1993** 1995 1994* 1993**
-------- -------- --------- -------- -------- ---------
RATIOS (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS):
Net expenses 0.47% 0.45% + 0.40%+ 0.52% 0.50%+ 0.50% +
Net investment income 5.83% 5.50% + 5.58%+ 5.96% 5.62%+ 5.67% +
PORTFOLIO TURNOVER 76% 20% 10% 54% 25% 12%
NET ASSETS, end of period (000 omitted) $82,968 $84,005 $67,019 $411,038 $423,854 $393,677
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA PORTFOLIO TEXAS PORTFOLIO
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
------------------------------- -------------------------------
JULY 31, JULY 31, SEPT. 30, JULY 31, JULY 31, SEPT. 30,
1995 1994* 1993** 1995 1994* 1993**
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS)++ :
Net expenses 0.49% 0.48%+ 0.50% + 0.08% 0.00% + 0.03%+
Net investment income 6.02% 5.66%+ 5.71% + 6.20% 5.69% + 5.82%+
PORTFOLIO TURNOVER 44% 21% 17% 49% 27% 8%
NET ASSETS, end of period (000 omitted) $502,250 $536,786 $497,001 $28,227 $27,589 $16,029
++The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and/or allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
Expenses 0.35% 0.37%+ 0.42%+
Net investment income 5.93% 5.32%+ 5.43%+
</TABLE>
+ Annualized.
* For the ten months ended July 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
63
<PAGE>
-------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Arizona Tax Free Portfolio (Arizona Portfolio), Colorado Tax Free Portfolio
(Colorado Portfolio), Connecticut Tax Free Portfolio (Connecticut Portfolio),
Michigan Tax Free Portfolio (Michigan Portfolio), Minnesota Tax Free Portfolio
(Minnesota Portfolio), New Jersey Tax Free Portfolio (New Jersey Portfolio),
Pennsylvania Tax Free Portfolio (Pennsylvania Portfolio) and Texas Tax Free
Portfolio (Texas Portfolio), collectively the Portfolios, are registered under
the Investment Company Act of 1940 as non-diversified open-end management
investment companies which were organized as trusts under the laws of the State
of New York on May 1, 1992. The Declarations of Trust permit the Trustees to
issue interests in the Portfolios. The following is a summary of significant
accounting policies of the Portfolios. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES -- The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes on
any taxable income of the Portfolios because each investor in the Portfolios are
ultimately responsible for the payment of any taxes. Since some of the
Portfolios' investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios normally
must satisfy the applicable source of income and diversification requirements
(under the Internal Revenue Code) in order for their respective investors to
satisfy them. The Portfolios will allocate at least annually among their
respective investors each investor's distributive share of the Portfolios' net
taxable (if any) and tax-exempt investment income, net realized capital
gains, and any other items of income, gain, loss, deductions or credit. Interest
income received by the Portfolios on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain its
status as income exempt from federal income tax when allocated to each
Portfolio's investors. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax preference
item for investors.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by a Portfolio in connection
with its organization are being amortized on the straight-line basis over five
years beginning on the date each Portfolio commenced operations.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by a Portfolio ("margin maintenance") each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's investment
in financial futures contracts is designed only to hedge against anticipated
future changes in interest rates. Should interest rates move unexpectedly, the
Portfolio may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Portfolios may engage in
when-issued and delayed delivery transactions. The Portfolio records when-issued
securities on trade date and maintains security positions such that sufficient
liquid assets will be available to make payments for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are
marked-to-market daily and begin accruing interest on settlement date.
G. OTHER -- Investment transactions are accounted for on a trade date basis.
64
<PAGE>
-------
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to each Portfolio.
The fee is based upon a percentage of average daily net assets plus a percentage
of gross income (i.e., income other than gains from the sale of securities).
For the year ended July 31, 1995, each Portfolio paid advisory fees as follows:
<TABLE>
<CAPTION>
AMOUNT EFFECTIVE RATE*
---------- ----------------
<S> <C> <C>
Arizona $ 629,148 0.42%
Colorado 128,496 0.28%
Connecticut 835,605 0.44%
Michigan 856,258 0.44%
Minnesota 310,489 0.37%
New Jersey 1,944,340 0.47%
Pennsylvania 2,416,419 0.48%
Texas 56,319 0.21%
</TABLE>
To enhance the net income of the Colorado Portfolio and the Texas Portfolio, BMR
made a reduction in its fee in the amount of $69,064 and $56,319, respectively,
and $18,606 of expenses related to the operation of the Texas Portfolio were
allocated to BMR.
Except as to Trustees of the Portfolios who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolios out of such investment adviser fee. Investors Bank & Trust
Company (IBT), an affiliate of EVM and BMR, serves as custodian of the
Portfolios. Pursuant to the custodian agreements, IBT receives a fee reduced by
credits which are determined based on the average daily cash balances each
Portfolio maintains with IBT. Certain of the officers and Trustees of the
Portfolios are officers and directors/trustees of the above organizations.
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 the Trustees Deferred Compensation Plan. For the
year ended July 31, 1995, no significant amounts have been deferred.
* Advisory fees paid as a percentage of average daily net assets.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the year ended July 31, 1995 were as follows:
<TABLE>
<CAPTION>
ARIZONA PORTFOLIO COLORADO PORTFOLIO CONNECTICUT PORTFOLIO MICHIGAN PORTFOLIO
------------------- -------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Purchases $31,754,220 $ 23,720,614 $ 55,774,738 $101,893,489
Sales 42,996,767 25,026,530 58,525,219 116,259,363
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO NEW JERSEY PORTFOLIO PENNSYLVANIA PORTFOLIO TEXAS PORTFOLIO
------------------- -------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Purchases $62,647,201 $219,433,205 $220,102,046 $ 13,166,608
Sales 62,259,757 237,114,073 264,136,096 13,804,505
</TABLE>
65
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned by each Portfolio at July 31, 1995, as computed on a federal income tax
basis, were as follows:
<TABLE>
<CAPTION>
ARIZONA COLORADO CONNECTICUT MICHIGAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Aggregate Cost $140,218,111 $ 44,277,269 $192,808,845 $182,066,681
------------ ------------ ------------ ------------
Gross unrealized appreciation $ 6,026,055 $ 1,602,238 $ 3,281,263 $ 6,693,457
Gross unrealized depreciation 2,197,433 442,812 4,835,599 2,233,242
------------ ------------ ------------ ------------
Net unrealized appreciation (depreciation) $ 3,828,622 $ 1,159,426 $(1,554,336 ) $ 4,460,215
============== ============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY PENNSYLVANIA TEXAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Aggregate Cost $ 78,851,048 $389,842,758 $477,086,127 $ 26,750,393
------------ ------------ ------------ ------------
Gross unrealized appreciation $ 2,866,555 $ 15,128,046 $17,966,732 $ 777,979
Gross unrealized depreciation 296,490 1,485,389 3,985,529 356,481
------------ ------------ ------------ ------------
Net unrealized appreciation $ 2,570,065 $ 13,642,657 $13,981,203 $ 421,498
============== ============== =============== ==============
</TABLE>
- --------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other portfolios and funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Each Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests or settle transactions. Interest is
charged to each portfolio or fund based on its borrowings at an amount above
either the bank's adjusted certificate of deposit rate, a variable adjusted
certificate of deposit rate, or a federal funds effective rate. In addition, a
fee computed at an annual rate of 1/4 of 1% on the $20 million committed
facility and on the daily unused portion of the $100 million discretionary
facility is allocated among the participating funds and portfolios at the end of
each quarter. The Portfolios did not have any significant borrowings or
allocated fees during the period. For the Connecticut Portfolio, the average
daily loan balance for the year ended July 31, 1995 was $1,583,254 and the
average interest rate was 7.27%. The maximum borrowings outstanding at any point
during the year were $6,997,000. At July 31, 1995, the Arizona Portfolio had a
$903,000 loan outstanding pursuant to this line of credit.
66
<PAGE>
-------
- --------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolios regularly trade in financial instruments with off-balance sheet
risk in the normal course of their investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment a Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at July 31, 1995 is
as follows:
<TABLE>
<CAPTION>
FUTURES
CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION APPRECIATION
- -------------- ---------------- ------------------------- -------- ---------------
<S> <C> <C> <C> <C>
Arizona 9/95 63 U.S. Treasury Bonds Short $ 48,427
Colorado 9/95 39 U.S. Treasury Bonds Short 29,978
Connecticut 9/95 145 U.S. Treasury Bonds Short 111,459
Michigan 9/95 188 U.S. Treasury Bonds Short 135,699
Minnesota 9/95 40 U.S. Treasury Bonds Short 14,497
New Jersey 9/95 125 U.S. Treasury Bonds Short 45,304
Texas 9/95 28 U.S. Treasury Bonds Short 33,773
</TABLE>
At July 31, 1995 each Portfolio had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
The Pennsylvania Portfolio had no obligations outstanding at July 31, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Portfolios changed their fiscal year end from September 30, to July 31,
effective July 31, 1994.
67
<PAGE>
-------
Independent Auditors' Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF:
ARIZONA TAX FREE PORTFOLIO
COLORADO TAX FREE PORTFOLIO
CONNECTICUT TAX FREE PORTFOLIO
MICHIGAN TAX FREE PORTFOLIO
MINNESOTA TAX FREE PORTFOLIO
NEW JERSEY TAX FREE PORTFOLIO
PENNSYLVANIA TAX FREE PORTFOLIO
TEXAS TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Arizona Tax Free Portfolio, Colorado Tax Free
Portfolio, Connecticut Tax Free Portfolio, Michigan Tax Free Portfolio,
Minnesota Tax Free Portfolio, New Jersey Tax Free Portfolio, Pennsylvania Tax
Free Portfolio and Texas Tax Free Portfolio as of July 31, 1995 , and the
related statements of operations for the year then ended, and the statements of
changes in net assets and the supplementary data for the year ended July 31,
1995 and the ten months ended July 31, 1994 and for the period from the start of
business, February 1, 1993, to September 30, 1993. These financial statements
and supplementary data are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on the financial statements and
supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1995, by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other audit procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of Arizona Tax Free Portfolio,
Colorado Tax Free Portfolio, Connecticut Tax Free Portfolio, Michigan Tax Free
Portfolio, Minnesota Tax Free Portfolio, New Jersey Tax Free Portfolio,
Pennsylvania Tax Free Portfolio and Texas Tax Free Portfolio at July 31, 1995,
the results of their operations, the changes in their net assets and their
supplementary data for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
AUGUST 25, 1995
68
<PAGE>
-------
Investment Management
- --------------------------------------------------------------------------------
FUNDS
- --------------------------------------------------------------------------------
PORTFOLIOS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspaper of New
England, Inc.
JAMES B. HAWKES
SAMUEL L. HAYES, III
Vice President, Trustee
Jacob H. Schiff Professor of
Investment
ROBERT B. MACINTOSH
Banking, Harvard University
Graduate
Vice President
School of Business Administration
JAMES L. O'CONNOR
NORTON H. REAMER
Treasurer
President and Director,
THOMAS OTIS
United Asset Management
Corporation
Secretary
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
OFFICERS TIMOTHY T. BROWSE
Vice President and Portfolio
Manager of
THOMAS J. FETTER
Michigan and Texas Tax Free
Portfolios
President
JAMES L. O'CONNOR
JAMES B. HAWKES
Treasurer
Vice President, Trustee
THOMAS OTIS
ROBERT B. MACINTOSH
Secretary
Vice President of Arizona,
Colorado,
Connecticut, Michigan,
Minnesota,
INDEPENDENT TRUSTEES
New Jersey, Pennsylvania
and Texas
DONALD R. DWIGHT
Tax Free Portfolios
President, Dwight Partners, Inc.
Portfolio Manager of
Minnesota and
Chairman, Newspaper of New
England, Inc.
New Jersey Tax Free
Portfolios
SAMUEL L. HAYES, III
CYNTHIA J. CLEMSON
Jacob H. Schiff Professor of
Investment
Vice President and
Portfolio Manager of
Banking, Harvard University
Graduate
Arizona and Colorado Tax
Free Portfolios
School of Business Administration
DAVID C. REILLY
NORTON H. REAMER
Vice President and
Portfolio Manager of
President and Director,
Pennsylvania Tax Free
Portfolio
United Asset Management
Corporation
NICOLE ANDERES
JOHN L. THORNDIKE
Vice President and
Portfolio Manager of
Director, Fiduciary Company
Incorporated
Connecticut Tax Free
Portfolio
JACK L. TREYNOR
Investment Adviser and Consultant
<PAGE>
-------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
70
<PAGE>
-------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Funds, including its distribution
plan, sales charges and expenses. Please read the prospectus carefully before
you invest or send money.
EATON VANCE
MUNICIPALS TRUST
24 FEDERAL STREET
BOSTON, MA 02110
C-TFCSRC
<PAGE>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
- EV Traditional Connecticut Tax Free Fund
- EV Traditional New Jersey Tax Free Fund
- EV Traditional Pennsylvania Tax Free Fund
================================================================================
[EATON VANCE LOGO]
================================================================================
ANNUAL SHAREHOLDER REPORT
JULY 31, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
One-year results ........................................................ 2
President's letter to shareholders ...................................... 3
Management Reports:
EV Traditional Connecticut Tax Free Fund ........................ 4
EV Traditional New Jersey Tax Free Fund ......................... 5
EV Traditional Pennsylvania Tax Free Fund ....................... 6
Financial Results ............................................... 7
</TABLE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
<TABLE>
<CAPTION>
RESULTS FOR THE YEAR ENDED JULY 31, 1995.
--------------------------------------------------------------------------------------------------------------------
Fund's The After-Tax
Dividends Paid Fund's NAV Distribution If Your Combined Equivalent Federal
by Fund Per Share at Rate at Federal & State Yield You Income Tax
During Period 7/31/95 7/31/95 Tax Rate is Would Need is Information*
-------------- ------------ ------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
EV Traditional
CONNECTICUT
Tax Free Fund $0.575 $10.09 5.70% [GRAPHIC OF CONNECTICUT] 38.88% 9.30% 99.29%
EV Traditional
NEW JERSEY
Tax Free Fund $0.590 $ 9.98 5.91% [GRAPHIC OF NEW JERSEY] 40.21% 9.86% 99.35%
EV Traditional
PENNSYLVANIA
Tax Free Fund $0.585 $ 9.98 5.86% [GRAPHIC OF PENNSYLVANIA] 37.79% 9.41% 99.60%
</TABLE>
* Percentages represent the amounts of the total dividends paid by the Funds,
from net investment income during the year that ended July 31, 1995, that have
been designated as tax-exempt interest dividends. Tax legislation eliminated
the exception to the market discount rules applicable to tax-exempt
obligations.As a result, certain tax-exempt obligations acquired by the
Portfolio at market discounts may generate a small amount of ordinary taxable
income.
2
<PAGE>
TO SHAREHOLDERS
The global economy continues to demonstrate a pattern of slow growth with low
inflation. The U.S. economy is no exception, with Gross Domestic Product poised
to grow only modestly during 1995, between 2% and 3%, with inflation of less
than 3%. These characteristics bode well for all capital markets and
particularly fixed-income markets, including municipal bonds.
Indeed, municipal bonds performed well during the first half of 1995, posting
strong price gains as a result of this favorable investment environment.
However, during this period the municipal market underperformed the taxable
market because of concern about the potential passage of major tax reform (e.g.,
flat tax, value-added tax or consumption tax) legislation.
Were major tax reform to become law, municipal bonds would likely be
underperformers relative to taxable bonds because the current tax-advantaged
status of municipal bonds probably would be eliminated.
However, we at Eaton Vance believe there is little chance of major tax reform
legislation being enacted. Many reasons have led us to this conclusion. For
example, the inherent regressivity of the various flat tax proposals will
provoke much opposition, as will proposals to eliminate such tax breaks as
deductions for mortgage interest and state and local taxes. Also, such proposals
could seriously depress entire sectors of the U.S. economy.
Accordingly, we view this recent underperformance by municipal bonds due to
fears of tax reform as a potential buying opportunity. Municipal bonds could
represent an attractive asset class at these current relative trading
relationships, with the potential for future outperform-ance for those investors
willing to adopt a patient, long-term investment horizon.
In addition, proposals are now circulating in both Congress and the White House
to reduce the nation's budget deficit by severely cutting expenditures over the
next decade. If enacted, such a concept would drastically reduce the federal
government's borrowing needs and, as a result, would exert a meaningful downward
influence on interest rates across the entire yield curve. All fixed-income
instruments, including municipal bonds, would benefit.
[Chart entitled "Despite tax policy uncertainty, tax-exempt bonds yield more
than 88% of Treasury yields"]
This is a bar chart. The first of two bars shows the yield for 30-year AA-rated
General Obligation (GO) bonds as 6.05%.
Below that bar is a second bar, showing the yield of 30-year Treasury bonds as
6.90%.
Extending to the right of the upper bar--the one describing general obligation
yield--is an additional bar labeled 9.45% - Taxable equivalent yield of
investment for couple in 35% tax bracket.
An asterisk after "30-year AA General Obligation (GO) bonds" refers to the
following footnote: "Source: Bloomberg, L.P. GO yield is a compilation of a
respresentative variety of general obligation bonds and is not necessarily
represented by the Fund's yield."
There are these other footnotes:
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government. Statistics as of July 31, 1995. Past performance is no
guarantee of future results.
We will continue to monitor changes in economic and political conditions and to
pursue the goal of your Fund: to provide you with a competitive distribution of
tax-free income from a portfolio of quality municipal bonds.+
[PHOTO THOMAS J.FETTER, PRESIDENT]
Sincerely,
/s/ THOMAS J.FETTER
- -------------------
Thomas J.Fetter
President
September 20, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
Included in the pages that follow are performance charts that compare your
Fund's total return with that of a broad-based securities market index. The
lines on the chart represent the total returns of $10,000 hypothetical
investments in your Fund and the unmanaged Lehman Brothers Municipal Bond Index.
The solid line on the chart represents the Fund's performance. The Fund's total
return figure reflects fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions. The
dotted line represents the performance of the Lehman Brothers Municipal Bond
Index, a broad-based, widely recognized unmanaged index of municipal bonds.
Whereas the Fund's portfolio is composed principally of bonds solely from your
individual state, the Index is composed of bonds from all 50 states and many
jurisdictions. The Index's total return does not reflect any commissions or
expenses that would be incurred if an investor individually purchased or sold
the securities represented in the Index.
3
<PAGE>
EV TRADITIONAL CONNECTICUT TAX FREE FUND
YOUR INVESTMENT AT WORK
Loomis Chaffee School
MBIA Insured bonds
Issued in 1995 under the aegis of the Connecticut Health and Educational
Facilities Authority, the proceeds of these bonds were used to finance the
construction of a new dormitory and various renovations at Loomis Chaffee
School, a private secondary school located in Windsor. The school maintains a
selective admissions policy, has an endowment of $30 million, and has an
outstanding debt of only half that amount. The school's impressive profile and
balanced finances gave MBIA the comfort to insure this issue, which is rated
Aaa/AAA. Naturally, private insurance does not remove the market risk associated
with this investment.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
[GRAPHIC OF CONNECTICUT]
<TABLE>
<S> <C>
Number of issues.................................................. 100
Average quality................................................... Aa-
Investment grade.................................................. 99.5%
Effective maturity................................................ 16.6 yrs.
Largest sectors:
Healthcare (non-hospital)...................................... 12.5%
Education...................................................... 10.8
Insured hospitals.............................................. 10.0*
Housing........................................................ 8.2
Solid waste.................................................... 8.1
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
THE STATE OF THE STATE: Connecticut
The economy in Connecticut is beginning to regain its luster. Economic
indicators such as job growth and personal income continue to strengthen from
their late 1980s bout with layoffs and restructuring that afflicted the state.
The state's deep recession led to major job losses in such industries as
finance, real estate, insurance and defense, which were hard-hit by industry
restructurings, and shrinking government appropriations. Together, those
setbacks eroded the state's economic base. However, while the employment outlook
for those industries remains relatively weak, job gains in construction,
service, trade, health care and tourism have partially offset those losses and
have helped put the state on the road to recovery.
While the municipal market has been roiled by uncertainties over tax reform and
the fallout from the Orange County debacle, investors in Connecticut tax-exempt
debt can feel comfortable knowing that this state has a long history of
conservative financial management and employs good disclosure
practices.Connecticut is steadily advancing beyond the difficulties of its
recent past and is moving to improve its financial future.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV TRADITIONAL
CONNECTICUT TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From April 30, 1994, through July 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------
Cumulative 1 Life of
Total Return Year Fund*
- --------------------------------------------------
<S> <C> <C>
With 3.75% sales charge 2.0% 3.6%
- --------------------------------------------------
Without sales charge 5.9% 6.7%
- --------------------------------------------------
</TABLE>
EV TRADITIONAL CONNECTICUT TAX FREE FUND: $10,860
EV TRADITIONAL CONNECTICUT TAX FREE FUND W/MAX. SALES CHARGE: $10,453
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $11,012
<TABLE>
<CAPTION>
DATE T. CT. OFFERING C. CT. NAV LEHMAN BROS.
- --------------------------------------------------------------------------
<S> <C> <C> <C>
4/94+ $ 9,625 $10,000 $10,000
5/94 9,757 10,138 10,087
6/94 9,658 10,034 10,028
7/94 9,871 10,255 10,209
8/94 9,889 10,275 10,244
9/94 9,759 10,139 10,094
10/94 9,491 9,861 9,915
11/94 9,161 9,518 9,735
12/94 9,439 9,807 9,949
1/95 9,789 10,170 10,234
2/95 10,115 10,509 10,532
3/95 10,205 10,603 10,653
4/95 10,223 10,621 10,665
5/95 10,497 10,906 11,005
6/95 10,371 10,775 10,909
7/95 10,453 10,860 11,012
</TABLE>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than original cost. Source: Towers Data Systems, Bethesda,
MD.
*Investment operations commenced 4/19/94. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
FROM THE PORTFOLIO MANAGER:
"The extreme market volatility of last autumn created a good opportunity to
purchase deep discount bonds - even among high quality AA- and AAA-rated bonds -
and pick up yield without sacrificing credit quality. By the Spring of 1995, the
market had rallied sharply and these discount bonds had significantly
outperformed other segments of the market, adding to the performance of the
Fund. The market has quieted in recent months, especially the Connecticut
market, where new issuance is limited largely to generic general obligation
issues."
[PHOTO NICOLE ANDERES]
Nicole Anderes
4
<PAGE>
EV TRADITIONAL NEW JERSEY TAX FREE FUND
YOUR INVESTMENT AT WORK
Gloucester County, NJ [GRAPHIC]
Utility Authority
Water & Sewer Revenue Bonds
Issued by the Gloucester County Utility Authority, this bond was dedicated to
funding Phase III of a waste treatment facility in Gloucester County.
Specifically, the program is designed to upgrade the maintenance and operating
efficiency of a waste treatment facility. By constructing a second sludge
incinerator, the plant should reach a 20% increase in its daily capacity. The
bond provided improvements for the County, while representing an attractive
yielding investment supported by residents' water and sewer bill payments.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
[GRAPHIC OF NEW JERSEY]
<TABLE>
<S> <C>
Number of issues ................................................. 130
Average quality .................................................. A
Investment grade ................................................. 87.6%
Effective maturity ............................................... 16.25 yrs.
Largest sectors:
Transportation ................................................ 15.1%
General obligations ........................................... 13.3
Solid waste ................................................... 6.8
Hospitals ..................................................... 6.6
Insured lease revenue.......................................... 5.8*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
THE STATE OF THE STATE: New Jersey
The New Jersey economy has reflected the slower activity of the national scene.
Declines in the housing market, manufacturing, and consumer spending have
contributed to the state's slowdown. Nearly 10,000 jobs have been lost in
manufacturing alone this year. The state's unemployment rate stood at 6.8% in
July, remaining well above the national rate. On a more positive note, the
service sector continued to add jobs. More than two-thirds of the 52,000 private
sector jobs created in the past year within the state were generated by the
service segment, including business, management, engineering, retailing, food
services, and health care. And while housing starts were depressed, outlays for
commercial construction and public works projects remained fairly strong.
New Jersey has benefited from its increasingly well-managed financial operations
and a strong display of fiscal prudence by the Whitman administration.
Implementing stricter cost controls and reductions in expenditures, New Jersey
is providing a model for other states hoping to control social spending.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV TRADITIONAL NEW
JERSEY TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL
BOND INDEX
From April 30, 1994, through July 31, 1995
<TABLE>
<CAPTION>
--------------------------------------------
Cumulative 1 Life of
Total Return Year Fund*
--------------------------------------------
<S> <C> <C>
With 3.75% sales charge 2.6% 2.9%
--------------------------------------------
Without sales charge 6.6% 6.0%
--------------------------------------------
</TABLE>
EV TRADITIONAL NEW JERSEY TAX FREE FUND: $10,854
EV TRADITIONAL NEW JERSEY TAX FREE FUND W/MAX. SALES CHARGE: $10,444
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $11,012
<TABLE>
<CAPTION>
DATE T.NJ OFFERING T.NJ NAV LEHMAN BROS.
- -------------------------------------------------------------
<S> <C> <C> <C>
4/94+ $ 9,622 $10,000 $10,000
5/94 9,728 10,110 10,087
6/94 9,639 10,017 10,028
7/94 9,796 10,180 10,209
8/94 9,875 10,262 10,244
9/94 9,754 10,137 10,094
10/94 9,546 9,920 9,915
11/94 9,294 9,659 9,735
12/94 9,566 9,941 9,949
1/95 9,879 10,267 10,264
2/95 10,139 10,536 10,532
3/95 10,220 10,621 10,653
4/95 10,239 10,641 10,665
5/95 10,508 10,920 11,055
6/95 10,392 10,800 10,909
7/95 10,444 10,854 11,012
</TABLE>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 4/13/94. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
FROM THE PORTFOLIO MANAGER:
"The past year has proven to be a highly volatile period for the bond market,
given last year's sharp decline and the subsequent strong market rally we have
enjoyed in 1995. I have focused on the insured sector to provide quality and
ensure good liquidity for the Portfolio. At the same time, I've increased
slightly the Portfolio's exposure to the health care sector, which has improved
somewhat in recent months, and have added some select high-yielding situations,
which helped add yield to the Fund."
[PHOTO ROBERT B. MACINTOSH]
Robert B. MacIntosh
5
<PAGE>
EV TRADITIONAL PENNSYLVANIA TAX FREE FUND
YOUR INVESTMENT AT WORK
Chester County
Industrial Development Auth.
Senior Life Choice of Kimberton
The proceeds of these bonds are being used to fund the construction of the
Continuing Care Retirement Center, an assisted living project in Kimberton, PA.
This issue is a good example of the Portfolio's efforts to focus on non-rated
bonds and private placement issues. Because the issue was purchased in its
entirety by Eaton Vance, we were able to structure the deal with favorable
terms. With an 8.05% coupon, the bonds represent a 250 basis point advantage
over other long-term Pennsylvania issues.
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
[GRAPHIC OF NEW JERSEY]
<TABLE>
<S> <C>
Number of issues.................................................. 132
Average quality................................................... Aa-
Investment grade.................................................. 95.1%
Effective maturity................................................ 14.13 yrs.
Largest sectors:
Hospitals...................................................... 22.6%
Housing........................................................ 12.3
Industrial development authority............................... 8.7
Insured hospitals.............................................. 7.1*
Escrowed....................................................... 6.5
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with this investment.
THE STATE OF THE STATE: Pennsylvania
The Pennsylvania economy continues to demonstrate the beneficial effects of a
shift from its past reliance on manufacturing toward a growing diversification
into the service sectors. Pennsylvania's unemployment rate declined sharply
during the period, falling to 5.4% in July. The service sector continued to
account for nearly two-thirds of the state's job gains, with health services and
social services pacing the gains. Durable goods manufacturing also added
significantly to job growth, led by metals and industrial machinery.
Pennsylvania has now posted three consecutive years with surplus operations.
That marks a significant departure from the early 1990s, when a declining
cyclical economy and rising social costs played havoc with the state's finances.
Importantly, with an improved economic mix and a stronger national and regional
picture, Pennsylvania has returned to fiscal balance in recent years. The
Commonwealth's fiscal outlook has benefited from a tax package implemented in
1991, as well as from stricter cost controls and an improving revenue base
resulting from a stronger economy.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV TRADITIONAL
PENNSYLVANIA TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From June 30, 1994, through July 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------
Cumulative 1 Life of
Total Return Year Fund*
- -------------------------------------------------------
<S> <C> <C>
With 3.75% sales charge 1.5% 2.5%
- -------------------------------------------------------
Without sales charge 5.4% 5.9%
- -------------------------------------------------------
</TABLE>
EV TRADITIONAL PENNSYLVANIA TAX FREE FUND: $10,743
EV TRADITIONAL PENNSYLVANIA TAX FREE FUND W/MAX. SALES CHARGE: $10,337
LEHMAN BROTHERS MUNICIPAL BOND INDEX: $10,982
<TABLE>
<CAPTION>
DATE T. PA. OFFERING T. PA. NAV LEHMAN BROS.
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
6/94+ $ 9,621 $10,000 $10,000
7/94 9,806 10,191 10,180
8/94 9,825 10,211 10,216
9/94 9,686 10,067 10,066
10/94 9,478 9,851 9,887
11/94 9,179 9,541 9,708
12/94 9,388 9,758 9,922
1/95 9,678 10,059 10,206
2/95 9,944 10,336 10,502
3/95 10,065 10,462 10,623
4/95 10,063 10,460 10,636
5/95 10,390 10,799 10,975
6/95 10,275 10,679 10,879
7/95 10,337 10,743 10,982
</TABLE>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's share, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 6/1/94. +Index information is available only
at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
FROM THE PORTFOLIO MANAGER:
"The market outlook for the municipal sector has improved significantly
following a difficult 1994. With a slow growth economy and relatively low
municipal supply, the municipal market has fared well in 1995. Accordingly, I
have become somewhat more constructive toward the market, adding to positions in
bonds that tend to be more sensitive to interest rate changes. Elsewhere, I've
continued to be very selective about investments in hospital bonds. Finally, in
a fairly quiet market, I have looked increasingly to private placements and
non-rated bonds for opportunities to increase the Fund's yield."
[PHOTO DAVID C. REILLY]
David C. Reilly
6
<PAGE>
EV Traditional Tax Free Funds
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CONNECTICUT NEW JERSEY PENNSYLVANIA
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments -
Identified cost $ 1,043,797 $ 1,657,362 $ 1,448,371
Unrealized appreciation 48,377 24,141 27,436
------------- ------------- ------------
Total investments in Portfolio, at value (Note 1A) $ 1,092,174 $ 1,681,503 $ 1,475,807
Receivable for Fund shares sold - 9,623 -
Receivable from the Administrator (Note 4) 19,622 19,481 15,522
Deferred organization expenses (Note 1D) 7,776 6,332 5,995
------------- ------------- ------------
Total assets $ 1,119,572 $ 1,716,939 $ 1,497,324
------------- ------------- ------------
LIABILITIES:
Dividends payable $ 4,066 $ 4,654 $ 4,013
Payable for Fund shares redeemed - - 5,862
Payable to affiliate - Custodian fee 84 84 -
Accrued expenses 539 570 769
------------- ------------- ------------
Total liabilities $ 4,689 $ 5,308 $ 10,644
------------- ------------- ------------
NET ASSETS $ 1,114,883 $ 1,711,631 $ 1,486,680
============= ============= ============
SOURCES OF NET ASSETS:
Paid-in capital $ 1,080,007 $ 1,709,942 $ 1,472,355
Accumulated net realized loss on investment and financial
futures transactions (computed on the basis of identified cost) (11,986) (21,036) (12,503)
Accumulated distributions in excess of net investment income (1,515) (1,416) (608)
Unrealized appreciation of investments and financial futures contracts
from Portfolio (computed on the basis of identified cost) 48,377 24,141 27,436
------------- ------------- ------------
Total $ 1,114,883 $ 1,711,631 $ 1,486,680
============= ============= ============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 110,521 171,530 148,932
============= ============= ============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(net assets / shares of beneficial interest outstanding) $ 10.09 $ 9.98 $ 9.98
============= ============= ============
COMPUTATION OF OFFERING PRICE PER SHARE
(100/96.25 of net asset value per share) $ 10.48 $ 10.37 $ 10.37
============= ============= ============
</TABLE>
On sales of $50,000 or more, the offering price is reduced.
See notes to financial statements
7
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CONNECTICUT NEW JERSEY PENNSYLVANIA
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 39,132 $ 61,020 $ 35,913
Expenses allocated from Portfolio (3,336) (4,868) (2,658)
------------- ------------- ------------
Net investment income from Portfolio $ 35,796 $ 56,152 $ 33,255
------------- ------------- ------------
Expenses -
Service fees (Note 5) $ 36 $ 28 $ 56
Custodian fee (Note 4) 1,419 2,584 850
Printing and postage 7,408 9,219 7,940
Legal and accounting services 5,806 5,643 3,385
Amortization of organization expenses (Note 1D) 1,364 757 1,806
Registration costs 503 128 516
Transfer and dividend disbursing agent fees 466 593 397
Miscellaneous 2,656 625 628
------------- ------------- ------------
Total expenses $ 19,658 $ 19,577 $ 15,578
Deduct allocation of expenses to the Administrator (Note 4) 19,622 19,481 15,522
------------- ------------- ------------
Net expenses $ 36 $ 96 $ 56
------------- ------------- ------------
Net investment income $ 35,760 $ 56,056 $ 33,199
------------- ------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from Portfolio -
Investment transactions (identified cost basis) $ (23) $ (7,089) $ 164
Financial futures contracts (11,941) (13,935) (12,667)
------------- ------------- ------------
Net realized loss on investments and financial futures contracts $ (11,964) $ (21,024) $ (12,503)
Change in unrealized appreciation of investments 46,738 23,112 27,034
------------- ------------- ------------
Net realized and unrealized gain $ 34,774 $ 2,088 $ 14,531
------------- ------------- ------------
Net increase in net assets from operations $ 70,534 $ 58,144 $ 47,730
============= ============= ============
</TABLE>
See notes to financial statements
8
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CONNECTICUT NEW JERSEY PENNSYLVANIA
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 35,760 $ 56,056 $ 33,199
Net realized loss on investments (11,964) (21,024) (12,503)
Change in unrealized appreciation of investments 46,738 23,112 27,034
------------- ------------- ------------
Net increase in net assets from operations $ 70,534 $ 58,144 $ 47,730
------------- ------------- ------------
Distributions to shareholders (Note 2) -
From net investment income $ (35,760) $ (56,056) $ (33,199)
In excess of net investment income (1,438) (1,355) (474)
------------- ------------- ------------
Total distributions to shareholders $ (37,198) $ (57,411) $ (33,673)
------------- ------------- ------------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sales of shares $ 1,185,803 $ 1,752,811 $ 1,594,537
Net asset value of shares issued to shareholders in payment
of distributions declared 12,415 19,133 13,089
Cost of shares redeemed (279,831) (357,531) (229,836)
------------- ------------- ------------
Increase in net assets from Fund share transactions $ 918,387 $ 1,414,413 $ 1,377,790
------------- ------------- ------------
Net increase in net assets $ 951,723 $ 1,415,146 $ 1,391,847
NET ASSETS:
At beginning of period 163,160 296,485 94,833
------------- ------------- ------------
At end of period $ 1,114,883 $ 1,711,631 $ 1,486,680
============= ============= ============
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (1,515) $ (1,416) $ (608)
============ ============ ===========
</TABLE>
See notes to financial statements
9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CONNECTICUT NEW JERSEY PENNSYLVANIA
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 1,092 $ 600 $ 111
Net realized loss on investments (22) (12) -
Unrealized appreciation of investments 1,639 1,029 402
------------- ------------- ------------
Net increase in net assets from operations $ 2,709 $ 1,617 $ 513
------------- ------------- ------------
Distributions to shareholders (Note 2) -
From net investment income $ (1,092) $ (600) $ (111)
In excess of net investment income (77) (61) (134)
------------- ------------- ------------
Total distributions to shareholders $ (1,169) $ (661) $ (245)
------------- ------------- ------------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sales of shares $ 161,241 $ 346,177 $ 94,424
Net asset value of shares issued to shareholders in payment
of distributions declared 379 52 141
Cost of shares redeemed - (50,700) -
------------- ------------- ------------
Increase in net assets from Fund share transactions $ 161,620 $ 295,529 $ 94,565
------------- ------------- ------------
Net increase in net assets $ 163,160 $ 296,485 $ 94,833
NET ASSETS:
At beginning of period - - -
------------- ------------- ------------
At end of period $ 163,160 $ 296,485 $ 94,833
============= ============= ============
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (77) $ (61) $ (134)
============= ============= ============
</TABLE>
* For the Traditional Connecticut, Traditional New Jersey and the Traditional
Pennsylvania Funds, the Statements of Changes in Net Assets are for the period
from the start of business, April 19, 1994, April 13, 1994 and June 1, 1994,
respectively, to July 31, 1994.
See notes to financial statements
10
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TRADITIONAL CONNECTICUT TRADITIONAL NEW JERSEY TRADITIONAL PENNSYLVANIA
---------------------------- ---------------------------- ----------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JULY 31,1995 JULY 31,1994** JULY 31,1995 JULY 31,1994** JULY 31,1995 JULY 31,1994**
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.100 $10.000 $9.940 $10.000 $10.050 $ 10.000
------- ------- ------ ------- ------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.553 $ 0.153 $0.576 $ 0.161 $ 0.577 $ 0.044
Net realized and unrealized gain(loss)
on investments 0.012 0.111 0.054 (0.044)++ (0.062)++ 0.104
------- ------- ------ ------- ------- -------
Total income from operations $ 0.565 $ 0.264 $0.630 $ 0.117 $ 0.515 $ 0.148
------- ------- ------ ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.553) $(0.153) $(0.576) $(0.161) $(0.577) $(0.044)
In excess of net investment income (0.022) (0.011) (0.014) (0.016) (0.008) (0.054)
------- ------- ------- ------- ------- -------
Total distributions $(0.575) $(0.164) $(0.590) $(0.177) $(0.585) $(0.098)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.090 $10.100 $ 9.980 $ 9.940 $ 9.980 $10.050
======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 5.89% 2.66% 6.62% 1.19% 5.41% 1.49%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted) $ 1,115 $ 163 $1,712 $ 296 $ 1,487 $ 95
Ratio of net expenses to average daily
net assets (1) 0.51% 0.48%+ 0.50% 0.43%+ 0.46% 1.69%+
Ratio of net investment income to average
daily net assets 5.46% 4.83%+ 5.65% 4.11%+ 5.58% 2.76%+
</TABLE>
*For the year ended July 31, 1995 and the period from the start of business,
April 19, 1994, April 13, 1994 and June 1, 1994, to July 31, 1994,respectively,
the operating expenses of the Funds reflect an allocation of expenses to the
Administrator. Had such actions not been taken, net investment income (loss)
per share and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (LOSS) PER SHARE $ 0.249 $(0.045) $0.375 $(0.237) $ 0.307 $(0.258)
======= ======= ====== ======= ======= =======
RATIOS (As a percentage of average daily
net assets):
Expenses (1) 3.51% 6.73%+ 2.47% 10.59%+ 3.07% 20.95%+
Net investment income (loss) 2.46% (1.42)%+ 3.68% (6.05)%+ 2.97% (16.50)%+
</TABLE>
** For the Traditional Connecticut, Traditional New Jersey and the Traditional
Pennsylvania Funds, the Financial Highlights are for the period from the
start of business, April 19, 1994, April 13, 1994 and June 1, 1994,
respectively, to July 31, 1994.
+ Annualized.
++ The per share amount is not in accord with the net realized and unrealized
gain for the period because of the timing of sales of Fund shares and the
amount of per share realized and unrealized gains and losses at such time.
(1) Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Total return is calculated assuming purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date.Total return is computed on a
non-annualized basis.
See notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Municipals Trust (the Trust) is an entity of the type commonly known
as a Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Trust
presently consists of sixty-three Funds, three of which are included in these
financial statements and are considered to be nondiversified. They include EV
Traditional Connecticut Tax Free Fund, ("Traditional Connecticut Fund"), EV
Traditional New Jersey Tax Free Fund ("Traditional New Jersey Fund") and EV
Traditional Pennsylvania Tax Free Fund ("Traditional Pennsylvania Fund"). Each
Fund invests all of its investable assets in interests in a separate
corresponding open-end management investment company (a Portfolio), a New York
Trust, having the same investment objective as its corresponding Fund. The
Traditional Connecticut Fund invests its assets in the Connecticut Tax Free
Portfolio, the Traditional New Jersey Fund invests its assets in the New Jersey
Tax Free Portfolio and the Traditional Pennsylvania Fund invests its assets in
the Pennsylvania Tax Free Portfolio. The value of each Fund's investment in its
corresponding Portfolio reflects the Funds' proportionate interest in the net
assets of that Portfolio (0.6%, 0.4% and 0.3% at July 31, 1995 for the
Traditional Connecticut Fund, Traditional New Jersey Fund and Traditional
Pennsylvania Fund, respectively.) The performance of each Fund is directly
affected by the performance of its corresponding Portfolio. The financial
statements of each Portfolio, including the portfolio of investments, are
included elsewhere in this report and should be read in conjunction with each
Fund's financial statements. The following is a summary of significant
accounting policies consistently followed by the Trust in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles.
A. INVESTMENT VALUATIONS - Valuation of securities by the Portfolios is
discussed in Note 1 of the Portfolios' Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME - Each Fund's net investment income consists of each Fund's pro rata
share of the net investment income of its corresponding Portfolio, less all
actual and accrued expenses of each Fund determined in accordance with generally
accepted accounting principles.
C. FEDERAL TAXES - Each Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable and tax-exempt income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is necessary. At July 31, 1995, net capital losses
of $12,141, $22,379 and $15,147 for the Traditional Connecticut Fund,
Traditional New Jersey Fund and Traditional Pennsylvania Fund, respectively,
attributable to security transactions incurred after October 31, 1994 are
treated as arising on the first day of the Fund's next taxable year. Dividends
paid by each Fund from net interest on tax-exempt municipal bonds allocated from
its corresponding Portfolio are not includable by shareholders as gross income
for federal income tax purposes because each Fund and Portfolio intend to meet
certain requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Funds to pay exempt-interest
dividends. The portion of such interest, if any, earned on private activity
bonds issued after August 7, 1986, may be considered a tax preference item to
shareholders.
D. DEFERRED ORGANIZATION EXPENSES - Costs incurred by a Fund in connection with
its organization, including registration costs, are being amortized on the
straight-line basis over five years, beginning on the date each Fund commenced
operations.
E. OTHER - Investment transactions are accounted for on a trade date basis.
12
<PAGE>
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of each Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of a Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Funds
distinguish between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary over distributions for financial statement
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital.
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Funds' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CONNECTICUT FUND NEW JERSEY FUND PENNSYLVANIA FUND
----------- ----------- -----------
YEAR ENDED JULY 31, YEAR ENDED JULY 31, YEAR ENDED JULY 31,
------------------- ------------------- -------------------
1995 1994* 1995 1994* 1995 1994*
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Sales 120,607 16,109 176,303 34,973 161,529 9,425
Issued to shareholders electing to receive
payments of distributions in Fund shares 1,266 38 1,938 5 1,318 14
Redemptions (27,499) - (36,535) (5,154) (23,354) -
------- ------- ------- ------- ------- -----
Net Increase 94,374 16,147 141,706 29,824 139,493 9,439
======= ======= ======= ======= ======= ======
</TABLE>
* From the start of business, April 19, 1994, April 13, 1994 and June 1, 1994,
for the Traditional Connecticut, Traditional New Jersey and Traditional
Pennsylvania Funds, respectively, to July 31, 1994.
- --------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of each Fund, but
receives no compensation. The Portfolios have engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 2 of the Portfolios' Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Funds, $19,622,
$19,481 and $15,522 of expenses related to the operation of the Traditional
Connecticut Fund, Traditional New Jersey Fund and Traditional Pennsylvania Fund,
respectively, were allocated to EVM. Except as to Trustees of the Funds and the
Portfolios who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their services to each Fund out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM, serves as custodian to the Funds and the Portfolios. Pursuant to the
respective custodian agreements, IBT receives a fee reduced by credits which are
determined based on the average cash balances the Funds or the Portfolios
maintain with IBT. Certain of the officers and Trustees of the Funds and
Portfolios are officers and directors/trustees of the above organizations (Note
5).
13
<PAGE>
(5) SERVICE PLAN
Each Fund has adopted a service plan designed to meet the requirements of Rule
12b-1 under the Investment Company Act of 1940 and the service fee requirements
of the revised sales charge rule of The National Association of Securities
Dealers, Inc. The Service Plans provide that each Fund may make service fee
payments to the Principal Underwriter, Eaton Vance Distributors, Inc., a
subsidiary of Eaton Vance Management, Authorized Firms or other persons in
amounts not exceeding 0.25% of each Fund's average daily net assets for any
fiscal year. The Trustees have initially implemented each Plan by authorizing
the Fund to make quarterly service fee payments to the Principal Underwriter and
Authorized Firms in amounts not exceeding 0.20% of each Fund's average daily net
assets for any fiscal year which is attributable to shares of a Fund sold by
such persons and remaining outstanding for at least one year. Service fee
payments are made for personal services and/or the maintenance of shareholder
accounts. For the year ended July 31, 1995, the Traditional Connecticut Fund,
Traditional New Jersey Fund and Traditional Pennsylvania Fund paid or accrued
service fees of $36, $28, and $56, respectively.
Certain of the officers and Trustees of the Funds are officers and directors of
EVD.
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding Portfolio
for the year ended July 31, 1995 were as follows:
<TABLE>
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CONNECTICUT FUND NEW JERSEY FUND PENNSYLVANIA FUND
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increases $1,187,217 $1,903,050 $1,601,729
Decreases 323,060 409,768 268,388
</TABLE>
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF
EATON VANCE MUNICIPALS TRUST:
We have audited the accompanying statements of assets and liabilities of EV
Traditional Connecticut Tax Free Fund, EV Traditional New Jersey Tax Free Fund,
and EV Traditional Pennsylvania Tax Free Fund (certain of the series of the
Eaton Vance Municipals Trust) as of July 31, 1995, the related statements of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for the year ended July 31, 1995 and for the period
from the start of business to July 31, 1994. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the aforementioned
funds of Eaton Vance Municipals Trust at July 31, 1995, the results of their
operations, the changes in their net assets, and their financial highlights for
the respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
AUGUST 25, 1995
15
<PAGE>
CONNECTICUT TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS - JULY 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 10.8%
Baa BBB $1,000 Connecticut HEFA, University
of Hartford, 6.75%, 7/1/12 $ 975,350
Baa BBB 5,500 Connecticut HEFA, University
of Hartford, 6.80%, 7/1/22 5,302,660
NR BBB- 6,175 Connecticut HEFA, Quinnipiac
College, 6.00%, 7/1/23 5,497,294
NR BBB- 1,000 Connecticut HEFA, Sacred
Heart University, 6.80%,
7/1/12 1,045,400
NR A- 1,000 Connecticut HEFA, Sacred
Heart University, 5.80%,
7/1/23 842,940
NR A 1,125 Connecticut HEFA, Taft
School, 5.40%, 7/1/20 1,011,476
Aaa AAA 6,000 Connecticut HEFA, Yale
University, 5.929%, 6/10/30 5,929,680
------------
$ 20,604,800
------------
ESCROWED TO MATURITY - 2.4%
NR AA- $ 650 State of Connecticut Govern-
ment Obligation Bonds,
6.875%, 7/15/10 $ 729,775
NR AAA 800 Connecticut Special Tax
Obligation Bonds, Transportation
Infrastructure Purposes, 6.75%,
6/1/11 906,304
A1 AA- 645 Connecticut Special Tax
Obligation Bonds, Transportation
Infrastructure Purposes, 6.50%,
7/1/09 706,475
A1 AA- 300 Amity RSD No. 5 Bonds,
6.80%, 6/15/08 326,166
Baa BBB 1,630 City of Stratford, Government
Obligation Bonds, 7.30%,
3/1/12 1,869,561
------------
$ 4,538,281
------------
GENERAL OBLIGATION - 6.1%
Aa1 NR $ 350 City of Avon, 4.60%,
1/15/07 $ 327,159
Aa NR 525 Town of Guilford, 4.75%,
11/15/10 476,017
Aa NR 525 Town of Guilford, 4.75%,
11/15/11 471,466
A AA- 2,000 City of Bridgeport, 6.125%,
3/1/05 2,073,380
Aa AA- 1,750 State of Connecticut, Capital
Appreciation Bonds, 0%,
11/1/09 781,515
AA AA- 1,000 State of Connecticut, 5.50%,
3/15/10 983,190
AA AA- 500 State of Connecticut, 5.50%,
3/15/11 491,235
Aa AA 1,270 City of Danbury, 4.50%,
2/1/14 1,062,634
Aa1 NR 650 City of Farmington, 5.70%,
1/15/11 657,306
NR BBB 500 Government of Guam, 5.40%,
11/15/18 431,735
Aa1 AA+ 925 City of Norwalk Maritime
Center Project Bonds, 6.05%,
2/1/09 952,574
Baa1 A 2,000 Puerto Rico PBA Bonds, 5.50%,
7/1/21 1,832,480
NR NR 1,000 Virgin Islands PFA Revenue
Bonds, 7.25%, 10/1/18 1,031,550
------------
$ 11,572,241
------------
HEALTH CARE (NON-
HOSPITAL) - 12.5%
A1 AA- $ 600 Connecticut HEFA,
Nursing Home Program
(NHP) (Noble Horizons),
6.00%, 11/1/22 $ 586,554
A1 AA- 1,000 Connecticut HEFA, NHP
(Jewish Home-Fairfield),
6.25%, 11/1/20 1,008,720
A1 AA- 655 Connecticut HEFA, NHP
(St. Camillus), 6.25%, 11/1/18 661,766
A1 AA- 3,250 Connecticut HEFA, NHP (St.
Joseph's Manor) 6.25%,
11/1/16 3,283,573
A1 AA- 1,365 Connecticut HEFA, NHP
(Sharon Healthcare) 6.25%,
11/1/14 1,385,762
Aa3 NR 9,000 Connecticut Development
Authority Health Care Bonds
(Duncaster), 6.75%, 9/1/15 9,301,230
A1 AA- 720 Connecticut HEFA, NHP
(Highland View), 7.00%,
11/1/07 787,975
A1 AA- 335 Connecticut HEFA, NHP
(Wadsworth Glen), 7.00%,
11/1/07 366,627
A1 AA- 2,000 Connecticut HEFA, NHP
(Wadsworth Glen), 7.50%,
11/1/16 2,210,800
A1 AA- 3,000 Connecticut HEFA, NHP
(Windsor), 7.125%, 11/1/14 3,254,820
</TABLE>
16
<PAGE>
CONNECTICUT TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE (NON-
HOSPITAL) - (continued)
NR A- 1,000 Puerto Rico I. M. E. (Dr. Pila
Hospital), (FHA)
7.85%, 8/1/28 1,078,190
------------
$ 23,926,017
------------
HOSPITALS - 6.0%
NR A- $3,770 Connecticut HEFA, William
W. Backus Hospital, 6.375%,
7/1/22 $ 3,748,096
Baa1 NR 9,150 Connecticut HEFA, Griffin
Hospital, 5.75%, 7/1/23 7,814,009
------------
$ 11,562,105
------------
HOUSING - 8.2%
Aa AA $ 100 Connecticut HFA Mortgage
Revenue Bonds (MRB),
7.40%, 11/15/99 $ 102,965
Aa AA 1,400 Connecticut HFA, MRB,
7.20%, 11/15/01 1,473,556
Aa AA 200 Connecticut HFA, MRB,
7.00%, 11/15/09 207,336
Aa AA 6,200 Connecticut HFA, MRB,
6.70%, 11/15/12 6,336,524
Aa AA 250 Connecticut HFA, MRB,
6.55%, 11/15/13 252,910
Aa AA 1,000 Connecticut HFA, MRB,
5.85%, 11/15/16 955,420
Aa AA 120 Connecticut HFA, MRB,
7.625%, 11/15/17 123,988
Aa AA 1,700 Connecticut HFA, MRB,
6.35%, 5/15/17 1,674,177
Aa AA 2,500 Connecticut HFA, MRB,
6.60%, 11/15/23 2,511,700
Aa AA 2,000 Connecticut HFA, MRB,
6.75%, 11/15/23 2,030,000
------------
$ 15,668,576
------------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL
REVENUES - 3.0%
Aaa AAA $1,000 Connecticut Development
Authority (Pfizer Inc.),
6.55%, 2/15/13 $ 1,071,700
Aa AA- 2,000 Connecticut Development
Authority (Economic Develop-
ment Projects), Revenue Bonds,
6.00%, 11/15/08 2,066,960
A1 A+ 2,000 Connecticut Development
Authority (New England
Power Company Project),
7.25%, 10/15/15 2,142,580
Baa1 A 500 Puerto Rico Port Authority
(American Airlines), 6.30%,
6/1/23 485,275
------------
$ 5,766,515
-----------
INSURED AIRPORTS - 4.9%
Aaa AAA $8,200 State of Connecticut Airport
Revenue Bonds, Bradley
International Airport, (FGIC),
7.65%, 10/1/12 $ 9,315,364
------------
INSURED COLLEGE AND
UNIVERSITY - 3.9%
Aaa AAA $ 725 Connecticut HEFA, Fairfield
University (MBIA), 5.00%,
7/1/18 $ 636,129
Aaa AAA 1,200 Connecticut HEFA, Connecticut
College (MBIA), 6.625%,
7/1/11 1,272,948
Aaa AAA 2,000 Connecticut HEFA, Trinity
College (MBIA), 6.00%,
7/1/22 2,003,960
Aaa AAA 1,555 Connecticut HEFA, Choate
Rosemary College (MBIA),
6.80%, 7/1/15 (1) 1,683,661
Aaa AAA 750 Connecticut HEFA, Loomis
Chafee (MBIA), 6.00%,
7/1/15 760,793
Aaa AAA 1,000 Connecticut HEFA, Loomis
Chafee (MBIA), 6.00%,
7/1/25 1,005,850
------------
$ 7,363,341
------------
INSURED MISCELLANEOUS - 0.8%
Aaa AAA $1,750 Connecticut Municipal
Electric Energy Cooperative
Bonds (MBIA), 5.00%,
1/1/18 $ 1,549,520
------------
INSURED GENERAL
OBLIGATIONS - 4.3%
Aaa AAA $1,220 Town of Bethel, (MBIA),
6.50%, 2/15/09 $ 1,340,243
Aaa AAA 2,000 City of Waterbury, Tax
Revenue Bonds (FGIC),
5.375%, 4/15/08 1,984,380
Aaa AAA 740 Town of Stratford, (MBIA),
6.60%, 3/1/11 800,924
Aaa AAA 1,000 City of New Britain, (MBIA),
6.00%, 3/1/12 1,026,430
Aaa AAA 1,000 Town of Plainfield, (MBIA),
6.375%, 8/1/11 1,045,430
</TABLE>
17
<PAGE>
CONNECTICUT TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL
OBLIGATIONS - (continued)
Aaa AAA 2,120 Puerto Rico Public Improve-
ment Bonds (MBIA), 5.25%,
7/1/18 1,955,446
------------
$ 8,152,853
------------
INSURED HEALTHCARE - 1.3%
A1 AA- $1,735 Connecticut HEFA, NHP
(St. Joseph's Living Center),
(AMBAC), 5.10%, 11/1/19 $ 1,528,604
A1 AA- 1,030 Connecticut HEFA, NHP
(St. Joseph's Learning Center)
(AMBAC), 5.00%,
11/1/09 951,699
------------
$ 2,480,303
------------
INSURED HOSPITAL - 10.0%
Aaa AAA $1,000 Connecticut HEFA, Bridgeport
Hospital (MBIA), 6.625%,
7/1/18 $ 1,051,740
Aaa AAA 6,750 Connecticut HEFA, St. Francis
Hospital (FGIC), 5.00%,
7/1/23 5,808,172
Aaa AAA 1,500 Connecticut HEFA, Lawrence
and Memorial Hospital
(MBIA),5.00%, 7/1/13 1,345,740
Aaa AAA 5,750 Connecticut HEFA, Lawrence
and Memorial Hospital
(MBIA), 5.00%, 7/1/22 4,959,203
Aaa AAA 1,000 Connecticut HEFA, Hospital
of St. Raphael (AMBAC),
6.50%,
7/1/11 1,080,700
Aaa AAA 1,500 Connecticut HEFA, Hospital of
St. Raphael (AMBAC), 6.625%,
7/1/14 1,575,585
Aaa AAA 2,000 Connecticut HEFA, Yale-New
Haven Hospital (MBIA), 6.50%,
7/1/12 2,093,380
Aaa AAA 1,200 Connecticut HEFA, Yale-New
Haven Hospital (MBIA), 7.10%,
7/1/25 1,297,800
------------
$ 19,212,320
------------
INSURED SOLID WASTE - 0.7%
Aaa AAA $1,275 Connecticut Resources Recovery
Authority Mid-Connecticut
System Bonds (MBIA), 7.30%,
10/15/12 $ 1,343,161
------------
INSURED SPECIAL TAX - 0.7%
AAA $1,500 State of Connecticut Special
Tax Obligation Bonds (STOB)
(FGIC), 5.00%, 10/1/13 $ 1,342,950
------------
INSURED WATER
AND SEWER - 3.3%
Aaa AAA $1,750 Connecticut Development
Authority Water Facilities Bonds,
Connecticut Water Company
(AMBAC), (AMT), 5.875%,
9/1/22 $ 1,689,048
Aaa AAA 1,150 Connecticut Development
Authority Water Facilities
Bonds, Connecticut Water
Company (AMBAC),(AMT),
5.75%, 7/1/28 1,086,853
Aaa AAA 3,460 South Central Connecticut,
Regional Water Authority
Bonds (FGIC), 5.75%,
8/1/12 3,445,122
------------
$ 6,221,023
------------
SOLID WASTE - 8.1%
A NR $2,500 Bristol Resource Recovery
Facility Operating Committee,
(Ogden Martin Systems),
6.50%, 7/1/14 $ 2,570,800
A2 A+ 1,000 Connecticut Resources
Recovery Authority (American
REF-FUEL Company),
(AMT), 8.10%, 11/15/15 1,104,660
A2 A+ 450 Connecticut Resources
Recovery Authority (American
REF-FUEL Company),
(AMT), 8.00%, 11/15/15 495,760
A2 A+ 4,250 Connecticut Resources
Recovery Authority (American
REF-FUEL Company),
(AMT), 6.45%, 11/15/22 4,252,805
NR A 7,970 Eastern Connecticut Resource
Recovery Authority, (Wheela-
brator Lisbon), 5.50%,
1/1/20 7,000,609
------------
$ 15,424,634
------------
SPECIAL TAX - 2.7%
A1 AA- $1,000 State of Connecticut STOB,
4.40%, 10/1/04 $ 948,510
A1 AA- 1,000 State of Connecticut STOB,
5.40%, 9/1/10 968,880
A1 AA- 3,180 State of Connecticut STOB,
6.125%, 9/1/12 3,273,460
------------
$ 5,190,850
------------
</TABLE>
18
<PAGE>
CONNECTICUT TAX FREE PORTFOLIO (continued)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STUDENT LOANS - 1.4%
A1 NR $ 455 Connecticut Higher Education
Supplemental Loan Authority
(CHESLA) Revenue Bonds
(AMT), 7.375%, 11/15/05 $ 477,313
A1 NR 1,350 CHESLA Revenue Bonds
(AMT), 6.20%, 11/15/09 1,355,279
A1 NR 910 CHESLA Revenue Bonds
(AMT), 7.50%, 11/15/10 960,141
------------
$ 2,792,733
------------
TRANSPORTATION - 2.4%
Baa1 A $4,465 Puerto Rico Highway and
Transportation Authority
Bonds, 5.50%, 7/1/15 $ 4,172,900
Baa1 A 500 Puerto Rico Highway and
Transportation Authority
Bonds, 5.50%, 7/1/15 467,290
------------
$ 4,640,190
------------
UTILITY - 4.3%
NR BBB $1,100 Guam Power Authority
Revenue Bonds, 6.625%,
10/1/14 $ 1,115,015
NR BBB 3,625 Guam Power Authority
Revenue Bonds, 6.30%,
10/1/22 3,532,671
NR NR 3,500 Virgin Islands Water and
Power Authority, Electric
Revenue System Bonds,
7.40%, 7/1/11 3,646,055
------------
$ 8,293,741
------------
WATER & SEWER
REVENUE - 2.2%
Aa AA $1,250 State of Connecticut Clean
Water Fund Revenue Bonds,
6.00%, 10/1/12 $ 1,286,438
Aa AA 1,000 State of Connecticut Clean
Water Fund Revenue Bonds,
5.80%, 6/1/16 996,310
NR A+ 2,225 Connecticut Development
Authority Water Facilities,
(Stamford Water Company),
5.30%, 9/1/28 2,010,243
------------
$ 4,292,991
------------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $192,808,845) $191,254,509
============
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by Connecticut
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 30.4% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.6% to 14.2% of total investments.
See notes to financial statements
19
<PAGE>
NEW JERSEY TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS - JULY 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION- 5.0%
NR NR $15,750 New Jersey Economic
Development Authority,
Vineland Cogeneration
Limited Partnership, (AMT),
7.875%, 6/1/19 $ 16,904,475
NR BB+ 3,370 New Jersey Economic Devel-
opment Authority, Trigen-
Trenton Project, (AMT),
6.10%, 12/1/04 3,346,039
------------
$ 20,250,514
------------
EDUCATION- 3.5%
Baa1 BBB $ 2,480 New Jersey Educational
Facilities Authority, Seton
Hall University, 7.00%,
7/1/21 $ 2,618,235
Aa1 AA+ 1,000 New Jersey Educational
Facilities Authority,
Princeton Theological
Seminary, 6.375%, 7/1/22 1,034,580
NR NR 8,800 New Jersey State Higher
Education Assistance Authority,
(AMT), 0%, 7/1/20 3,042,952
NR BBB- 1,760 Puerto Rico Industrial, Tourist,
Educational, Medical and
Environmental Authority,
Polytechnic University, 5.70%,
8/1/13 1,620,626
NR BBB- 1,310 Puerto Rico Industrial, Tourist,
Educational, Medical and
Environmental Authority,
Polytechnic University,
5.50%, 8/1/24 1,139,988
R BBB- 1,000 Puerto Rico Industrial, Tourist,
Educational, Medical and
Environmental Authority,
Polytechnic University,
6.50%, 8/1/24 999,990
A1 AA 2,500 Rutgers, The State University
of New Jersey, 6.85%, 5/1/21 2,658,400
A AA 1,000 University of Medicine and
Dentistry of New Jersey,
7.20%, 12/1/19 1,089,280
------------
$ 14,204,051
------------
ESCROWED - 0.8%
Aaa AAA $ 870 The City of Newark, New
Jersey, (AMBAC), 7.375%,
10/1/07 $ 985,440
NR NR 2,000 County of Passaic, New
Jersey, 6.70%, 9/1/13 2,207,360
------------
$ 3,192,800
------------
GENERAL OBLIGATIONS - 13.3%
NR BBB $ 9,745 Government of Guam,
5.40%, 11/15/18 $ 8,414,515
NR A+ 5,000 The Hudson County
Improvement Authority,
6.625%, 8/1/25 5,235,950
Aa1 NR 3,000 Mercer County Improvement
Authority Solid Waste, 0%,
4/1/10 1,299,240
Baa1 A 1,990 Commonwealth of Puerto
Rico, 6.45%, 7/1/17 2,083,530
Baa1 A 5,000 Commonwealth of Puerto
Rico, 6.50%, 7/1/23 5,234,400
Baa BBB 5,645 The Commonwealth of
Puerto Rico Aqueduct
and Sewer Authority, 7.875%,
07/1/17 6,253,305
Baa1 A 3,250 Puerto Rico Public
Buildings Authority, Public
Education and Health
Facilities, 5.75%, 7/1/15 3,119,675
Baa1 A 5,125 Puerto Rico Public Buildings
Authority, Public Education
and Health Facilities, 5.50%,
7/1/21 4,695,730
Baa1 A 2,075 Puerto Rico Public
Buildings Authority, Public
Education and Health
Facilities, 5.75%, 7/1/16 1,977,932
NR NR 14,850 Virgin Islands Public Finance
Authority, 7.25%, 10/1/18 15,318,517
------------
$ 53,632,794
------------
HEALTH CARE (NON-
HOSPITAL) - 3.0%
NR BBB $ 615 New Jersey Economic
Development Authority
Cadbury Corporation, 7.50%,
7/1/21 $ 593,875
NR BBB 300 New Jersey Economic
Development Authority
Cadbury Corporation,
8.70%, 7/1/07 319,896
</TABLE>
20
<PAGE>
NEW JERSEY FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE (NON-
HOSPITAL) - (continued)
NR NR 1,400 New Jersey Economic
Development Authority,
Claremont Health System,
9.10%, 9/1/22 1,465,632
NR NR 2,500 New Jersey Economic
Development Authority
Victoria Health Corporation,
7.65%, 1/1/14 2,372,700
NR NR 4,000 New Jersey Economic
Development Authority
Keswick Pines Project,
8.75%, 1/1/24 3,991,120
NR NR 3,630 New Jersey Economic
Development Authority
Forsgate Project, 8.625%
6/1/25 3,410,857
------------
$ 12,154,080
------------
HOSPITALS - 6.6%
Aa AAA $10,790 New Jersey Health Care
Facilities Financing Authority,
Barnert Hospital, (FHA),
6.80%, 8/1/19 $ 11,298,209
A A- 2,300 New Jersey Health Care
Facilities Financing Authority,
Atlantic City Medical Center,
6.80%, 7/1/11 2,417,300
Baa1 NR 3,100 New Jersey Health Care
Facilities Financing Authority,
Deborah Heart and Lung
Center, 6.30%, 7/1/23 3,047,796
Baa NR 2,000 New Jersey Health Care
Facilities Financing Authority,
Southern Ocean County
Hospital, 6.25%, 7/1/23 1,842,100
A A- 9,659 New Jersey Health Care
Facilities Financing Authority,
Chilton Memorial Hospital,
5.00%, 7/1/13 8,175,866
------------
$ 26,781,271
------------
HOUSING - 4.4%
Aa AA $ 1,250 New Jersey Building
Authority, 7.20%,
6/15/13 $ 1,357,438
Aa AA- 2,591 New Jersey Building
Authority, Garden State
Savings, 0%, 6/15/10 1,105,813
NR AAA 3,700 New Jersey Housing and
Mortgage Finance Agency,
Presidential Plaza, (FHA),
7.00%, 5/1/30 3,832,793
NR AAA 2,000 New Jersey Housing and
Mortgage Finance Agency,
Presidential Plaza, (FHA),
6.95%, 5/1/13 2,084,940
NR AA+ 1,000 New Jersey Housing and
Mortgage Finance Agency,
Section 8, 7.10%, 11/1/12 1,040,920
NR AA+ 1,975 New Jersey Housing and
Mortgage Finance Agency,
Section 8, 7.10%, 11/1/11 2,055,817
NR AA+ 1,250 New Jersey Housing and
Mortgage Finance Agency,
Rental Housing, (AMT),
7.25%, 11/1/22 1,287,025
NR A+ 1,000 New Jersey Housing and
Mortgage Finance Agency,
Rental Housing, (AMT),
7.10%, 5/1/22 1,029,330
NR A+ 3,715 New Jersey Housing and
Mortgage Finance Agency,
6.60%, 11/1/14 3,773,511
Aaa AAA 300 Puerto Rico Housing
Finance Corporation
Mortgage Revenue(GNMA),
6.85%, 10/15/23 310,209
------------
$ 17,877,796
------------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL - 5.0%
NR NR $ 2,000 Middlesex County Pollution
Control Financing Authority,
Amerada Hess Corporation,
7.875%, 6/1/22 $ 2,238,020
NR NR 4,000 Middlesex County Pollution
Control Financing Authority,
Amerada Hess Corporation
6.875%, 12/1/22 4,168,480
Aa1 NR 3,000 New Jersey Economic
Development Authority,
Garden State Paper Company,
(AMT), 7.125%, 4/1/22 3,124,320
NR NR 2,000 New Jersey Economic
Development Authority,
The Seeing Eye, Inc., 7.30%,
4/1/11 2,123,560
NR BBB 1,160 New Jersey Economic
Development Authority
National Association of
Accountants, Inc. 7.65%,
7/1/09 1,241,583
NR AA- 3,300 New Jersey Economic
Development Authority, Oak
Grove Associates, 6.125%,
12/1/06 3,401,937
</TABLE>
21
<PAGE>
NEW JERSEY FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL - (continued)
Baa1 A- 2,135 New Jersey Economic
Development Authority
GATX Terminals Corporation,
7.30%, 9/1/19 2,349,098
Aa3 AA- 1,300 Puerto Rico Industrial,
Medical and Environmental
Pollution Control
Authority, Motorola, Inc.,
6.75%, 1/1/14 1,375,712
------------
$ 20,022,710
------------
INSURED EDUCATION - 0.5%
Aaa AAA $ 2,000 New Jersey State Educational
Facilities Authority Seton Hall
University, (BIGI), 6.85%,
7/1/19 $ 2,106,540
------------
INSURED HOSPITALS - 1.4%
Aaa AAA $ 1,310 New Jersey Health Care
Facilities Financing Authority,
Hackensack Medical Center,
(FGIC), 6.625%, 7/1/17 $ 1,372,631
Aaa AAA 2,000 New Jersey Health Care
Facilities Financing Authority,
Hackensack Medical Center,
(FGIC), 6.25%, 7/1/21 2,033,380
Aa AA- 480 New Jersey Health Care
Facilities Financing Authority,
Cathedral Health Services,
(MBIA), 7.25%, 2/15/10 522,144
Aa AA- 1,570 New Jersey Health Care
Facilities Financing Authority,
Cathedral Health Services,
(MBIA), 7.25%, 2/15/21 1,700,059
------------
$ 5,628,214
------------
INSURED HOUSING - 1.3%
Aaa AAA $ 1,410 New Jersey Housing and
Mortgage Finance Agency,
(MBIA), 7.375%, 10/1/17 $ 1,468,007
Aaa AAA 1,760 New Jersey Housing and
Mortgage Finance Agency,
(AMT), (MBIA), 7.70%,
10/1/29 1,847,402
Aaa AAA 1,745 Pennsauken Township
Housing Finance
Corporation,(MBIA),
8.00%, 4/1/11 1,836,665
------------
$ 5,152,074
------------
INSURED LEASE REVENUE - 5.8%
Aaa AAA $ 3,900 County of Atlantic, New
Jersey, Public Facilities
Lease Agreement,(FGIC),
6.00%, 3/1/13 $ 4,011,072
Aaa AAA 1,750 County of Hudson, New
Jersey Correctional Facility,
(MBIA), 6.50%,
12/1/11 1,842,925
Aaa AAA 6,240 County of Hudson, New
Jersey Correctional Facility,
(MBIA), 6.60%,
12/1/21 6,537,648
Aaa AAA 2,500 County of Hudson, New
Jersey Improvement Authority,
Secondary Yield Curve
Notes, (FGIC), Variable,
12/1/25 (1) 2,507,900
Aaa AAA 1,800 County of Middlesex, New
Jersey Certificates of
Participation, (MBIA),
6.125%, 2/15/19 1,835,622
Aaa AAA 5,000 New Jersey Builders
(AMBAC), 5%,
6/15/13 4,506,800
Aaa AAA 2,225 University of Medicine and
Dentistry Certificates of
Participation, (MBIA), 6.75%,
12/1/09 2,359,590
------------
$ 23,601,557
------------
INSURED SOLID WASTE - 0.5%
Aaa AAA $ 2,000 The Mercer County
Improvement Authority,
Solid Waste Revenue, (AMT),
(FGIC), 6.70%, 04/1/13 $ 2,118,200
------------
INSURED SPECIAL TAX - 0.8%
Aaa AAA $ 3,375 New Jersey Economic
Development Authority,
Market Transition Facility,
(MBIA), 5.875%, 7/1/11 $ 3,386,914
------------
INSURED TRANSPORTATION - 4.1%
Aaa AAA $ 2,000 The Delaware River and
Bay Authority, (MBIA),
4.75%, 1/1/24 $ 1,660,900
Aaa AAA 5,000 New Jersey Turnpike
Authority ORITESO, (MBIA),
Variable, 1/1/16 (1) 5,744,000
Aaa AAA 8,450 New Jersey Turnpike
Authority (MBIA), 6.50%,
1/1/16 9,162,335
------------
$ 16,567,235
------------
</TABLE>
22
<PAGE>
NEW JERSEY FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUTED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED UTILITIES - 3.9%
Aaa AAA $ 2,750 New Jersey Economic
Development Authority,
New Jersey American Water
Co., (AMT), (FGIC), 6.875%,
11/1/34 $ 2,912,058
Aaa AAA 13,500 Salem County, Public Service
Electric and Gas, (MBIA),
5.55%, 11/1/33 12,629,790
------------
$ 15,541,848
------------
INSURED WATER & SEWER - 5.0%
Aaa AAA $ 6,500 Landis New Jersey Sewerage
Authority, Linked OCARSO,
(FGIC), 5.65% , 9/19/19 $ 6,248,970
Aaa AAA 2,500 Middlesex County Utilities
Authority, Sewer Revenue
(MBIA), Variable,
8/15/10 (1) 2,645,425
Aaa AAA 2,000 Township of Monroe, New
Jersey Municipal Utilities
Authority (MBIA), 5.50%,
2/1/17 1,882,380
Aaa AAA 1,250 New Jersey Economic
Development Authority,
Middlesex Water Company,
(AMBAC), 5.20%, 10/1/22 1,107,550
Aaa AAA 1,650 New Jersey Economic
Development Authority,
Hackensack Water Company,
(MBIA), 5.80%, 3/1/24 1,607,248
Aaa AAA 1,270 Passaic Valley Water
Commissioners, (FGIC),
5.00%, 12/15/22 1,100,214
Aaa AAA 6,130 West New York, New Jersey
Municipal Utilities Authority,
(FGIC), 5.125%,
12/15/17 5,480,772
------------
$ 20,072,559
------------
LEASE/CERTIFICATE
OF PARTICIPATION - 3.7%
Baa1 A- $ 720 County of Atlantic, New
Jersey Public Facilities Lease
Agreement, 8.875%,
1/15/14 $ 929,902
Baa1 A- 785 County of Atlantic, New
Jersey Public Facilities Lease
Agreement, 8.875%,
1/15/15 1,015,043
A1 NR 1,000 Township of Bedminster,
New Jersey Board of
Education, 7.125%,
9/1/10 1,092,370
Aa AA- 1,000 Mercer County Improvement
Authority, Richard J. Hughes
Justice Complex, 6.05%,
1/1/14 1,000,510
Aa AA- 2,000 Mercer County Improvement
Authority, Richard J. Hughes
Justice Complex, 6.05%,
1/1/15 2,001,020
Aa AA- 1,500 Mercer County Improvement
Authority, Richard J. Hughes
Justice Complex, 6.05%,
1/1/16 1,500,465
Aa AA- 1,500 Mercer County Improvement
Authority, Richard J. Hughes
Justice Complex, 6.05%,
1/1/17 1,500,465
Aa AA- 5,420 New Jersey Building
Authority, 5.00%,
6/15/16 4,785,210
NR A+ 1,000 New Jersey Economic
Development Authority,
Performing Arts Center Site
Acquisition, 6.75%, 6/15/12 1,049,580
------------
$ 14,874,565
------------
MISCELLANEOUS - 4.0%
A1 A+ $ 1,650 New Jersey Economic
Development Authority
Economic Recovery Fund
0%, 9/15/09 $ 727,089
A1 A+ 5,500 New Jersey Economic
Development Authority
Economic Recovery Fund
0%, 3/15/13 1,911,525
NR NR 7,600 New Jersey Sports and
Exposition Authority,
Monmouth Park, 8.00%,
1/1/25 8,251,167
Aa NR 6,000 New Jersey Sports and
Exposition Authority,
5.20%, 1/1/20 5,318,580
------------
$ 16,208,361
------------
SOLID WASTE - 6.8%
Baa NR $ 3,655 The Atlantic County Utilities
Authority, Solid Waste Revenue,
7.125%, 3/1/16 $ 3,641,001
Ba BBB+ 6,125 Pollution Control Financing
Authority of Camden
County, (AMT), 7.50%,
12/1/09 6,237,639
Ba NR 5,975 Mercer County Improvement
Authority, Solid Waste
System Revenue (AMT),
0%, 4/1/14 1,548,003
</TABLE>
23
<PAGE>
NEW JERSEY FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOLID WASTE - (continued)
Ba NR 6,000 Mercer County Improvement
Authority, Solid Waste System
Revenue (AMT), 0%, 4/1/15 1,445,940
Ba NR 3,000 Mercer County Improvement
Authority, Solid Waste System
Revenue (AMT), 0%, 4/1/16 672,510
Ba NR 1,500 Passaic County Utilities
Authority Solid Waste System
Revenue, 7.00%, 11/15/07 1,485,795
NR A- 11,930 Union County, New Jersey
Utilities Authority, Solid Waste
Revenue, (AMT), 7.20%,
6/15/14 12,411,376
------------
$ 27,442,264
------------
SPECIAL TAX - 0.2%
Baa1 BBB+ $ 550 Puerto Rico Infrastructure
Financing Authority, 7.90%,
7/1/07 $ 607,574
------------
TRANSPORTATION - 15.1%
NR BBB $ 1,250 Guam Airport Authority,
(AMT), 6.60%, 10/1/10 $ 1,263,675
NR BBB 1,400 Guam Airport Authority,
6.50%, 10/1/23 1,390,886
NR BBB 2,000 Guam Airport Authority
(AMT), 6.70%, 10/1/23 1,999,740
A1 AA- 3,705 The Port Authority of New
York and New Jersey, 5.25%,
7/15/14 3,396,706
A1 AA- 9,500 The Port Authority of New
York and New Jersey,
7.35%, 10/1/27 (2) 10,438,315
A1 AA- 2,645 The Port Authority of New
York and New Jersey, 6.75%,
8/1/26 2,792,194
A1 AA- 5,000 The Port Authority of New
York and New Jersey, (AMT),
6.25%, 1/15/27 4,999,750
A1 AA- 9,000 The Port Authority of New
York and New Jersey, 6.125%,
6/1/94 8,962,560
A1 AA- 5,000 The Port Authority of New
York and New Jersey,
5.375%, 3/1/28 4,561,400
Baa1 BB 5,100 The Port Authority of
New York and New Jersey,
Delta Air Lines Inc., 6.95%,
6/1/08 5,356,428
Baa1 A 2,135 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/12 2,216,963
Baa1 A 3,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/21 2,638,110
Baa1 A 4,100 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 4,243,131
Baa3 BB+ 5,550 Puerto Rico Port Authority,
American Airlines, (AMT),
6.30%, 6/1/23 5,386,553
NR A+ 1,115 South Jersey Port Corpora-
tion, New Jersey Marine
Terminal, 6.875%, 1/1/20 1,147,224
------------
$ 60,793,635
------------
UTILITY - 2.8%
NR BBB $ 100 Guam Power Authority,
5.25%, 10/1/13 $ 88,727
NR BBB 1,500 Guam Power Authority,
5.25%, 10/1/23 1,267,485
NR BBB 2,000 Guam Power Authority,
6.75%, 10/1/24 2,031,080
A3 BBB+ 625 New Jersey Economic
Development Authority,
Elizabethtown Gas Co.,
(AMT), 6.75%, 10/1/21 632,337
A2 A 1,455 New Jersey Economic
Development Authority,
Natural Gas Facilities,
(AMT), 7.05%, 3/1/16 1,542,387
Baa1 A- 460 Puerto Rico Electric
Power Authority,
7.125%, 7/1/14 498,801
NR NR 5,105 Virgin Islands Water and
Power Authority, Electric
System Revenue, 7.40%,
7/1/11 5,318,032
------------
$ 11,378,849
------------
WATER & SEWER - 2.5%
A1 AA- $ 2,000 Gloucester County Utilites
Authority, 6.50%, 1/1/21 $ 2,062,600
A3 A 3,250 New Jersey Economic
Development Authority,
Elizabethtown Water
Revenue, (AMT), 6.70%,
8/1/21 3,394,853
Aa AA 1,400 New Jersey Wastewater
Treatment Trust,
7.25%, 5/15/08 1,511,230
Aa AA 1,000 New Jersey Wastewater
Treatment Trust, 6.875%,
6/15/09 1,090,310
</TABLE>
24
<PAGE>
NEW JERSEY FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WATER & SEWER - (continued)
Aa AA 250 New Jersey Wastewater
Treatment Trust, 7.00%,
6/15/10 273,342
Aa AA 1,000 New Jersey Wastewater
Treatment Trust, 6.00%
7/1/10 1,022,020
A1 AA 500 The Somerset Raritan
Valley Sewerage Authority
6.75%, 7/1/10 534,655
------------
$ 9,889,010
------------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $389,842,758) $403,485,415
============
</TABLE>
(1) The above designated securites have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio primarily invests in debt securities issued by New Jersey
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 27.9% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.1% to 14.5% of total investments.
See notes to financial statements.
25
<PAGE>
PENNSYLVANIA TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS - JULY 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 5.3%
NR NR $12,000 Pennsylvania Economic
Development Authority,
Northampton Generating
Project, (AMT), 6.50%,
1/1/13 $11,599,320
NR BBB- 9,000 Pennsylvania Economic
Development Authority,
Colver Project,(AMT),
7.125%, 12/1/15 9,437,490
NR BBB- 5,000 Pennsylvania Economic
Development Authority,
Colver Project, (AMT),
7.15%, 12/1/18 5,212,250
-----------
$26,249,060
-----------
EDUCATION -5.3%
NR BBB $ 4,865 Erie Higher Education
Building Authority, Mercy-
hurst College, 5.75%,
3/15/20 $ 4,370,132
Baa1 NR 1,500 Latrobe, Saint Vincent
College, 6.75%, 5/1/24
1,535,460
NR AAA 2,000 Lehigh County, Allentown
College of St. Francis, 6.75%,
12/15/12 2,129,440
Aa AA 3,700 Pennsylvania, University
of Pennsylvania, 6.625%,
1/1/17 3,733,041
NR A- 4,225 Scranton-Lackawanna,
Pennsylvania University,
University of Scranton,
6.40%, 3/1/07 4,368,185
NR AA 9,700 Swarthmore Borough,
Swathmore College, 6.00%,
9/15/20 9,649,366
-----------
$25,785,624
-----------
ESCROWED - 6.5%
Aaa AAA $ 5,600 Berks County, GO, (FGIC),
Variable, 11/15/20(1) $ 6,412,000
Aaa A- 1,750 Chester County, HEFA,
Bryn Mawr Hospitals, 6.75%,
7/1/14 1,990,468
Aaa AAA 3,195 Derry Township School
District, GO, (AMBAC),
6.20%, 9/1/08 3,430,951
Aaa AAA 2,000 Doylestown Hospital
Authority, Doylestown
Hospital, (AMBAC), 6.90%,
7/1/19 2,219,120
Aaa AAA 1,405 Lycoming County, GO,
(FGIC), 6.40%, 8/15/11 1,540,765
Aaa AAA 945 Lycoming County, GO,
(FGIC), 6.40%, 8/15/11 1,036,315
NR A- 1,000 Pennsylvania, HEFA, Elizabeth
College, 7.25%, 6/15/11 1,150,140
NR A- 6,900 Pennsylvania IDA, Economic
Development, 7.00%, 1/1/11 7,853,649
NR A- 5,155 Philadelphia, Hospital and
Higher Education Facility
Authority, Presbyterian
Medical Center, 6.50%,
12/1/11 5,646,684
Aaa AAA 500 York County Hospital
Authority, York Hospital,
(AMBAC), 7.00%, 7/1/21 565,985
-----------
$31,846,077
-----------
GENERAL OBLIGATIONS - 4.8%
NR A $ 4,725 Chester Upland School
District, 6.375%, 9/1/12 $ 4,828,383
NR A 3,000 Chester Upland School
Distict, 6.375%, 9/1/21 3,038,070
A1 AA- 465 Commonwealth of Penn-
sylvania, 6.75%, 1/1/07 498,182
A1 AA- 500 Commonwealth of Penn-
sylvania, 6.75%, 1/1/08 534,465
A1 AA- 5,435 Commonwealth of Penn-
sylvania, 6.50%,
11/1/09 5,729,251
A1 AA- 2,000 Commonwealth of Penn-
sylvania, 6.375%,
9/15/12 2,074,740
NR A 3,000 Dauphin County,
6.90%, 6/2/26 3,166,320
A1 A+ 2,050 Lower Providence Township
Sewer Authority Guaranteed,
6.75%, 5/01/22 2,142,066
NR A 1,950 McKeesport Area School
District, 5.00%, 4/1/13 1,741,194
-----------
$23,752,671
-----------
HOSPITALS - 22.6%
NR AAA $ 2,470 Allegheny County, IDA, Presby-
terian Medical Center, 6.75%,
2/1/26 $ 2,548,842
NR A- 4,000 Butler County IDA, Sherwood
Oaks, 5.75%, 6/1/16 3,588,520
NR AA- 12,000 Chester County, HEFA, (Main
Line Health System), 5.50%,
5/15/15 11,139,000
</TABLE>
26
<PAGE>
PENNSYLVANIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - continued
Baa BBB 2,000 Dauphin County Hospital
Authority, Community General
Osteopathic Hospital, 7.375%,
6/1/16 2,085,880
NR A- 10,250 Delaware County, Riddle
Memorial Hospital, 6.50%,
1/1/22 9,813,863
NR NR 4,755 Hazelton Luzerne County,
Saint Joseph Medical Center,
8.375%, 7/1/12 4,892,895
Baa1 NR 2,670 Indiana County Hospital
Authority, Indiana Hospital,
7.125%, 7/1/23 2,689,838
NR BBB+ 3,500 Lebanon County, Good
Samaritan Hospital, 6.00%,
11/15/18 3,148,285
Baa1 A 3,250 Lehigh County, Muhlenberg
Hospital, 6.60%, 7/15/22 3,233,620
NR BBB- 5,405 McKean County Hospital
Authority, Bradford Hospital,
6.10%, 10/1/20 4,591,115
NR BBB+ 2,615 Montgomery County, Potts-
town Medical Center, 6.875%,
11/15/20 2,597,558
A1 A+ 500 PA Hospital and Higher
Education Facility Authority,
Allegheny General Hospital,
7.25%, 9/1/17 536,535
A BBB+ 8,500 PA Hospital and Higher
Education Facility Authority,
Albert Einstein Medical Center,
7.625%, 4/1/11 9,054,965
Baa1 BBB+ 12,800 PA Hospital and Higher
Education Facility Authority,
Graduate Health System,
6.625%, 7/01/21 12,228,480
Aa AA 4,500 PA Hospital and Higher
Education Facility Authority,
Children's Hospital, 5.50%,
2/15/22 4,125,060
Baa1 A- 10,515 PA Hospital and Higher
Education Facility Authority,
Temple University Hospital,
6.625%, 11/15/23 10,517,418
Aa AA 10,200 PA Hospital and Higher
Education Facility Authority,
Children's Hospital, 5.00%,
2/15/21 8,745,276
Aa NR 4,750 Pottsville, Hospital Authority,
Daughters of Charity, 5.00%,
8/15/12 4,238,093
Baa NR 4,115 Somerset County, Hospital
Authority, Somerset County,
Somerset Community Hospital
Project, 6.750%, 3/1/11 3,950,359
A NR 7,000 Washington County, Hospital
Authority, Monongahela Valley
Hospital, 6.75%, 12/1/08 7,324,310
------------
$111,049,912
------------
HOUSING -12.3%
NR AAA $ 1,000 Bucks County, Mortgage
Revenue Bonds, Warminster
Heights Project, Section 8-A,
6.80%, 8/1/12 $ 1,029,520
NR NR 2,680 Chester County, IDA, 8.05%,
1/1/24 2,688,120
A1 A+ 3,000 Pennsylvania HFA MF, 7.60%,
7/1/13 3,210,330
Aaa NR 3,000 Philadelphia Redevelopment
Authority, MF, 6.95%,
5/15/24 3,102,450
Aaa NR 2,175 Allegheny County Residential
Finance Authority, SMFR,
(GNMA), 7.15%, 6/1/17 2,212,410
Aa AA 5,700 Pennsylvania HFA SFMR,
(AMT), 6.75%, 4/1/16 5,816,451
Aa AA 3,730 Pennsylvania HFA SFMR,
6.90%, 4/1/17 3,834,627
Aa AA 4,000 Pennsylvania HFA SFMR,
6.85%, 4/1/16 4,099,080
Aa AA 300 Pennsylvania HFA SFMR,
7.40%, 10/1/09 313,026
Aa AA 770 Pennsylvania HFA SFMR,
7.20%, 10/1/11 809,124
Aa AA 695 Pennsylvania HFA SFMR,
7.375%, 10/1/16 720,048
Aa AA 1,000 Pennsylvania HFA SFMR,
(AMT), Variable, 10/1/23(1) 1,059,990
Aa AA 5,500 Pennsylvania HFA SFMR,
(AMT), 6.85%, 4/1/25 5,637,280
Aa AA 8,350 Pennsylvania HFA SFMR,
(AMT), 7.50%, 10/1/25 8,868,034
Aa AA 10,000 Pennsylvania HFA SFMR,
(AMT), 6.65%, 10/01/21 10,177,400
A1 A 4,235 Urban Redevelopment Authority
of Pittsburgh Mortgage Revenue
Bonds, (AMT), 7.10%,
4/1/24 4,259,563
A1 A 265 Urban Redevelopment Authority
of Pittsburgh, 7.45%, 4/1/10 278,663
A1 A 1,000 Urban Redevelopment Authority
of Pittsburgh Mortgage Revenue
Bonds, 7.125%, 4/1/15 1,040,790
</TABLE>
27
<PAGE>
PENNSYLVANIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - continued
A1 A 1,055 Urban Redevelopment Authority
of Pittsburgh Mortgage Revenue
Bonds, (AMT), 7.40%,
4/1/24 1,096,630
-----------
$60,253,536
-----------
INDUSTRIAL DEVELOPMENT
AUTHORITY - 8.7%
A3 A $ 6,950 Butler County IDA, Witco
Corporation Project, 5.85%,
12/1/23 $ 6,573,449
NR BBB 1,005 Clearfield County IDA,
Kmart Corporation, 6.80%,
5/15/07 1,030,095
NR A+ 4,000 Franklin County IDA,
Corning Incorporated, 6.25%,
8/1/05 4,206,280
NR AAA 8,750 Mercer County IDA, Hillcrest
Nursing Center, 0%,
1/15/13 2,475,375
A2 A 12,000 New Morgan IDA, New
Morgan Landfill, (AMT),
6.50%, 4/1/19 12,155,040
Baa2 BBB- 5,000 Pennsylvania, IDA, Macmil-
liam Project, (AMT), 7.60%,
12/1/20 5,385,950
Baa1 BBB+ 4,450 Pennsylvania, IDA, Sun
Company Project, (AMT),
7.60%, 12/1/24 4,807,868
A2 A 6,025 Washington County IDA, West
Penn Power, 6.05%, 4/1/14 5,964,630
-----------
$42,598,687
-----------
INSURED AIRPORTS - 1.2%
Aaa AAA $ 6,000 Philadelphia Airport, (AMBAC),
(AMT), 6.00%, 6/15/15 $ 5,903,760
-----------
INSURED EDUCATION - 1.1%
Aaa AAA $ 2,500 Pennsylvania Higher Education
Assistance Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), 7.15%, 9/1/21 $ 2,639,200
Aaa AAA 1,500 Pennsylvania Higher Education
Assistance Agency Student
Loan Revenue Bonds, (AMBAC),
(AMT), Variable, 3/1/22 (1) 1,441,965
Aaa AAA 700 Pennsylvania Higher Education
Assistance Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), Variable, 9/1/26(1) 744,744
Aaa AAA 800 Pennsylvania Higher Education
Assistance Agency Student Loan
Revenue Bonds, (AMBAC),
(AMT), 6.40%, 3/1/22 808,712
-----------
$ 5,634,621
-----------
INSURED GENERAL
OBLIGATION - 3.0%
Aaa AAA $ 1,750 Deer Lakes School District,
(MBIA), 6.45%, 1/15/19 $ 1,792,210
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%,
9/1/20 454,701
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%, 9/1/21 427,230
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%, 9/1/22 401,407
Aaa AAA 2,170 Elizabeth Forward School
District, (MBIA), 0%, 9/1/23 377,168
Aaa AAA 4,345 Elizabeth Forward School
District, (MBIA), 0%, 9/1/24 709,582
Aaa AAA 1,460 Haverford School District,,
(FGIC), 6.125%, 6/1/14 1,477,199
Aaa AAA 4,500 Keystone Oaks School District,
(AMBAC), Variable,
9/1/16 (1) 4,348,170
Aaa AAA 1,430 Mars Area School District,
(MBIA), 0%, 3/1/14 474,245
Aaa AAA 655 Rochester Area School District,
(AMBAC), 0%, 5/1/10 278,703
Aaa AAA 2,795 Venango County, (AMBAC),
6.30%, 12/1/19 2,850,453
Aaa AAA 1,000 West Allegheny County School
District, (AMBAC), 6.60%,
2/1/09 1,034,210
-----------
$14,625,278
-----------
INSURED HOSPITAL - 7.1%
Aaa AAA $ 1,170 Allegheny County, Children's
Hospital of Pittsburgh, (MBIA),
6.75%, 7/1/08 $ 1,234,175
Aaa AAA 3,750 Allegheny County, Magee-
Womens Hospital, (FGIC), 0%,
10/1/15 1,114,425
Aaa AAA 1,400 Armstrong County Saint Francis
Health Care, (AMBAC), 6.25%,
6/1/13 1,430,296
Aaa AAA 2,500 Armstrong County Saint Francis
Health Care, (AMBAC), 6.00%,
8/15/08 2,557,425
Aaa AAA 4,400 Bucks County, IDA, Grand View
Hospital, (AMBAC), 5.25%,
7/1/21 3,889,864
</TABLE>
28
<PAGE>
PENNSYLVANIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITAL - continued
Aaa AAA 775 Carbon County, Gnaden Memorial
Hospital, (AMBAC), 7.00%,
11/15/14 825,243
Aaa AAA 750 Erie County Hospital Authority,
Harlot Medical Center,
(AMBAC), 7.10%, 2/15/10 811,313
Aaa AAA 230 Lehigh County Health East,
Incorporated, (MBIA), 7.00%,
7/1/15 244,801
Aaa AAA 5,000 Lehigh County, St. Luke's
Hospital, (AMBAC), 6.25%,
7/1/22 5,091,850
Aaa AAA 1,000 Montgomery County, Abington
Memorial Hospital, (AMBAC),
Variable, 6/1/11(1) 1,111,250
Aaa AAA 5,000 Philadelphia Hospital and Higher
Education, Pennsylvania Hospital,
(FGIC), Variable, 2/15/12 (1) 4,368,500
Aaa AAA 3,500 Sayre Health Care Facilities
Authority, Guthrie Healthcare
System, (AMBAC), 6.00%,
3/1/21 3,490,690
Aaa AAA 1,500 Scranton-Lackawanna, Mercy
Health Systems, (MBIA),
6.90%, 1/1/23 1,577,370
Aaa AAA 7,500 Washington County, Shadyside
Hospital, (AMBAC), 5.75%,
12/15/14 7,277,924
------------
$ 35,025,126
------------
INSURED LEASE - 4.1%
Aaa AAA $4,595 Harrisburg Authority, Dauphin
County, Lease Revenue, (CGIC),
6.25%, 6/1/10 $ 4,904,335
Aaa AAA 3,000 Northumberland County,
Lease Revenue, (MBIA), 0%,
10/15/12 1,109,040
Aaa AAA 5,600 Philadelphia Muni Authority
Lease Revenue, (FGIC),
5.625%, 11/15/18 5,317,592
Aaa AAA 10,000 Commonwealth of Pennsylvania,
Lease Revenue, (AMBAC),
5.00%, 7/1/15 8,751,600
------------
$ 20,082,567
------------
INSURED UTILITIES - 3.9%
Aaa AAA $4,000 Beaver County IDA, Ohio
Edison Company, (FGIC),
7.00%, 6/1/21 $ 4,270,880
Aaa AAA 10,000 Beaver County IDA, Ohio
Edison Company, (FGIC),
7.05%, 10/1/20 10,708,500
Aaa AAA 3,800 Puerto Rico Electric Power
Authority, (FSA), Variable,
7/1/02 (1) 4,116,578
------------
$ 19,095,958
------------
INSURED WATER & SEWER - 6.2%
Aaa AAA $2,750 Allegheny County, Sewer
Revenue, (FGIC), 0%,
12/1/08 $ 1,296,845
Aaa AAA 9,000 Bethlehem Authority, Northampton
and Lehigh Counties, Water
Revenue Bonds, (MBIA),
4.875%,11/15/14 7,805,070
Aaa AAA 2,500 City of Philadelphia, Water
and Wastewater, (FGIC),
Variable, 6/15/12(1) 2,350,000
Aaa AAA 9,000 City of Philadelphia, Water
and Wastewater, (CGIC),
5.50%, 6/15/15 8,441,280
Aaa AAA 2,460 City of Philadelphia, Water
and Wastewater, (CGIC), 5.00%,
6/15/16 2,145,440
Aaa AAA 8,920 City of Philadelphia, Water and
Wastewater, (MBIA), 5.60%,
8/1/18 8,435,555
------------
$ 30,474,190
------------
MISCELLANEOUS - 3.8%
NR AA $870 Pennsylvania Infrastructure
Investment Authority, Pennvest,
6.80%, 9/1/10 $ 922,487
NR A 16,950 Pennsylvania Finance Authority,
Beaver County, 6.60%,
11/1/09 17,744,277
------------
$ 18,666,764
------------
NURSING HOMES - 1.3%
NR NR $3,500 Montgomery County IDA,
Geriatric Health Care Institute,
8.375%, 7/1/23 $ 3,493,910
NR NR 1,460 Westmoreland County IDA,
Highland Health System,
9.25%, 6/1/22 1,517,860
NR NR 1,190 Philadelphia Hospital and
Higher Education Facilities
Authority, Philadelphia
Protestant, 8.625%, 7/1/21 1,200,995
------------
$ 6,212,765
------------
</TABLE>
29
<PAGE>
PENNSYLVANIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX REVENUE - 0.1%
Baa1 BBB+ $500 Puerto Rico Special Tax
Revenue, 7.50%, 7/1/09 $ 535,485
------------
TRANSPORTATION - 0.3%
Baa1 A $1,500 Puerto Rico Commonwealth
Highway, 5.50%, 7/1/13 $ 1,415,115
------------
UTILITIES - 2.2%
Baa3 BB+ $500 Beaver County, IDA, Ohio
Edison Company, 7.75%,
9/1/24 $ 524,550
Baa1 BBB+ 3,250 Delaware County, IDA,
Philadelphia Electric Company,
7.375%, 4/1/21 3,462,745
Baa1 BBB+ 4,070 Montgomery County, IDA,
Philadelphia Electric Company,
(AMT), 7.60%, 4/1/21 4,337,358
Baa1 A- 3,370 Puerto Rico Electric Power
Authority Power Revenue,
0%, 7/1/17 863,866
NR NR 1,500 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,562,595
------------
$ 10,751,114
------------
WATER & SEWER
REVENUE - 0.2%
Baa1 A $1,000 Puerto Rico Aqueduct and
Sewer Authority, 7.90%,
7/1/07 $ 1,109,020
------------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $477,086,127) $491,067,330
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio primarily invests in debt securities issued by Pennsylvania
municipalities. The ability of the issuers of debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 30.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.8% to 12.5% of total investments.
See notes to financial statements
30
<PAGE>
TAX FREE PORTFOLIOS
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT NEW JERSEY PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS:
Investments -
Identified cost $192,808,845 $389,842,758 $477,086,127
Unrealized appreciation (depreciation) (1,554,336) 13,642,657 13,981,203
------------ ------------ ------------
Total investments, at value (Note 1A) $191,254,509 $403,485,415 $491,067,330
Cash 1,592,566 1,075,446 4,181,885
Receivable for investments sold - 3,861,470 30,000
Interest receivable 2,509,768 5,337,412 6,962,611
Deferred organization expenses (Note 1D) 6,823 11,270 13,558
------------ ------------ ------------
Total assets $195,363,666 $413,771,013 $502,255,384
------------ ------------ ------------
LIABILITIES:
Payable for investments purchased $ - $ 2,654,715 $ -
Payable for daily variation margin on open
financial futures contracts (Note 1E) 77,031 66,406 -
Payable to affiliates -
Trustees' fees 919 1,406 1,713
Custodian fees 3,823 5,883 -
Accrued expenses 6,104 4,181 3,367
------------ ------------ ------------
Total liabilities $ 87,877 $ 2,732,591 $ 5,080
------------ ------------ ------------
NET ASSETS applicable to investors' interest in Portfolio $195,275,789 $411,038,422 $502,250,304
============ ============ ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $196,718,666 $397,350,461 $488,269,101
Unrealized appreciation (depreciation) of investments and
financial futures contracts (computed
on the basis of identified cost) (1,442,877) 13,687,961 13,981,203
------------ ------------ ------------
Total $195,275,789 $411,038,422 $502,250,304
============ ============ ============
</TABLE>
See notes to financial statements
31
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT NEW JERSEY PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $12,024,017 $ 26,778,322 $ 33,140,571
----------- ------------ ------------
Expenses -
Investment adviser fee (Note 2) $ 835,605 $ 1,944,340 $ 2,416,419
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 17,185 14,740 20,013
Custodian fees (Note 2) 48,135 91,170 -
Interest expense (Note 5) 55,056 38,870 11,820
Legal and accounting services 27,771 35,317 38,577
Bond Pricing 15,577 18,054 15,974
Amortization of organization expenses (Note 1D) 2,620 4,464 5,278
Printing and postage 552 - -
Registration costs 125 125 125
Miscellaneous 15,780 8,434 8,815
----------- ------------ ------------
Total expenses $ 1,018,406 $ 2,155,514 $ 2,517,021
----------- ------------ ------------
Net investment income $11,005,611 $ 24,622,808 $ 30,623,550
----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss -
Investment transactions (identified cost basis) $(2,556,284) $(13,015,045) $(13,832,451)
Financial futures contracts (2,778,750) (4,759,465) (6,462,533)
----------- ------------ ------------
Net realized loss on investments $(5,335,034) $(17,774,510) $(20,294,984)
----------- ------------ ------------
Change in unrealized appreciation -
Investments $ 3,995,907 $ 15,570,319 $ 16,678,284
Financial futures contracts 537,717 1,061,635 2,323,941
----------- ------------ ------------
Net unrealized appreciation of investments $ 4,533,624 $ 16,631,954 $ 19,002,225
----------- ------------ ------------
Net realized and unrealized loss on investments $ (801,410) $ (1,142,556) $ (1,292,759)
----------- ------------ ------------
Net increase in net assets from operations $10,204,201 $ 23,480,252 $ 29,330,791
=========== ============ ============
</TABLE>
See notes to financial statements
32
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT NEW JERSEY PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 11,005,611 $ 24,622,808 $ 30,623,550
Net realized loss on investment transactions (5,335,034) (17,774,510) (20,294,984)
Change in unrealized appreciation of investments 4,533,624 16,631,954 19,002,225
------------ ------------ -------------
Net increase in net assets from operations $ 10,204,201 $ 23,480,252 $ 29,330,791
------------ ------------ -------------
Capital transactions -
Contributions $ 25,911,862 $ 43,487,001 $ 38,709,755
Withdrawals (32,878,239) (79,782,847) (102,576,381)
------------ ------------ -------------
Decrease in net assets resulting from capital transactions $ (6,966,377) $(36,295,846) $ (63,866,626)
------------ ------------ -------------
Total increase (decrease) in net assets $ 3,237,824 $(12,815,594) $ (34,535,835)
NET ASSETS:
At beginning of year 192,037,965 423,854,016 536,786,139
------------ ------------ -------------
At end of year $195,275,789 $411,038,422 $ 502,250,304
============ ============ =============
</TABLE>
See notes to financial statements
33
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended July 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT NEW JERSEY PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 8,098,918 $ 19,598,942 $ 25,052,308
Net realized gain (loss) on investment transactions 610,531 1,931,832 (1,606,336)
Change in unrealized depreciation of investments (15,885,963) (34,629,145) (41,094,537)
------------ ------------ ------------
Net decrease in net assets from operations $ (7,176,514) $(13,098,371) $(17,648,565)
------------ ------------ ------------
Capital transactions -
Contributions $ 55,286,988 $ 95,610,275 $113,666,177
Withdrawals (15,920,869) (52,334,675) (56,232,111)
------------ ------------ ------------
Increase in net assets resulting from capital transactions $ 39,366,119 $ 43,275,600 $ 57,434,066
------------ ------------ ------------
Total increase in net assets $ 32,189,605 $ 30,177,229 $ 39,785,501
Net Assets:
At beginning of period 159,848,360 393,676,787 497,000,638
------------ ------------ ------------
At end of period $192,037,965 $423,854,016 $536,786,139
============ ============ ============
</TABLE>
* For the ten months ended July 31, 1994 (Note 7).
- --------------------------------------------------------------------------------
Year Ended September 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT NEW JERSEY PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 4,491,010 $ 12,599,045 $ 16,036,467
Net realized gain (loss) on investment transactions (369,709) 108,306 2,426,891
Change in unrealized appreciation of investments 8,422,527 20,473,018 21,996,791
------------ ------------ ------------
Net increase in net assets from operations $ 12,543,828 $ 33,180,369 $ 40,460,149
------------ ------------ ------------
Capital transactions -
Contributions $187,818,789 $409,889,770 $536,041,409
Withdrawals (40,614,277) (49,493,372) (79,600,940)
------------ ------------ ------------
Increase in net assets resulting from capital transactions $147,204,512 $360,396,398 $456,440,469
------------ ------------ ------------
Total increase in net assets $159,748,340 $393,576,767 $496,900,618
NET ASSETS:
At beginning of period 100,020 100,020 100,020
------------ ------------ ------------
At end of period $159,848,360 $393,676,787 $497,000,638
============ ============ ============
</TABLE>
* For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
34
<PAGE>
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONNECTICUT PORTFOLIO
YEAR ENDED
-----------------------------------------------------------
JULY 31, 1995 JULY 31, 1994* SEPT. 30, 1993**
----------------------------------------------------------
<S> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
Net expenses 0.53% 0.47%+ 0.46%+
Net investment income 5.77% 5.40%+ 5.45%+
PORTFOLIO TURNOVER 29% 10% 10%
NET ASSETS, end of period (000 omitted) $195,276 $192,038 $159,848
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PORTFOLIO
YEAR ENDED
-----------------------------------------------------------
JULY 31, 1995 JULY 31, 1994* SEPT. 30, 1993**
-----------------------------------------------------------
<S> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
Net expenses 0.52% 0.50%+ 0.50%+
Net investment income 5.96% 5.62%+ 5.67%+
PORTFOLIO TURNOVER 54% 25% 12%
NET ASSETS, end of period (000 omitted) $411,038 $423,854 $393,677
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENNSYLVANIA PORTFOLIO
YEAR ENDED
-----------------------------------------------------------
JULY 31, 1995 JULY 31, 1994* SEPT. 30, 1993**
-----------------------------------------------------------
<S> <C> <C> <C>
RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
Net expenses 0.49% 0.48%+ 0.50%+
Net investment income 6.02% 5.66%+ 5.71%+
PORTFOLIO TURNOVER 44% 21% 17%
NET ASSETS, end of period (000 omitted) $502,250 $536,786 $497,001
</TABLE>
+ Annualized.
* For the ten months ended July 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Connecticut Tax Free Portfolio ("Connecticut Portfolio"), New Jersey Tax Free
Portfolio ("New Jersey Portfolio") and Pennsylvania Tax Free Portfolio
("Pennsylvania Portfolio"), collectively the Portfolios, are registered under
the Investment Company Act of 1940 as non-diversified, open-end management
investment companies which were organized as trusts under the laws of the State
of New York on May 1, 1992. The Declarations of Trust permit the Trustees to
issue interests in the Portfolios. The following is a summary of significant
accounting policies of the Portfolios. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS - Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME - Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES - The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes on
any taxable income of the Portfolios because each investor in the Portfolios is
ultimately responsible for the payment of any taxes. Since some of the
Portfolios' investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios normally
must satisfy the applicable source of income and diversification requirements
(under the Internal Revenue Code) in order for their respective investors to
satisfy them. The Portfolios will allocate at least annually among their
respective investors each investor's distributive share of the Portfolios' net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deductions or credit. Interest income
received by the Portfolios on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain its
status as income exempt from federal income tax when allocated to each
Portfolio's investors. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax preference
item for investors.
D. DEFERRED ORGANIZATION EXPENSES - Costs incurred by a Portfolio in connection
with its organization are being amortized on the straight-line basis over five
years beginning on the date each Portfolio commenced operations.
E. FINANCIAL FUTURES CONTRACTS - Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by a Portfolio ("margin maintenance") each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's investment
in financial futures contracts is designed only to hedge against anticipated
future changes in interest rates. Should interest rates move unexpectedly, a
Portfolio may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS - The Portfolios may engage in
when-issued and delayed delivery transactions. The Portfolios record when-issued
securities on trade date and maintain security positions such that sufficient
liquid assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are
marked-to-market daily and begin earning interest on settlement date.
G. OTHER - Investment transactions are accounted for on a trade date basis.
36
<PAGE>
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to each Portfolio.
The fee is based upon a percentage of average daily net assets plus a percentage
of gross income (i.e., income other than gains from the sale of securities).
For the year ended July 31, 1995 each Portfolio paid advisory fees as follows:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT EFFECTIVE RATE*
- --------- ------ ---------------
<S> <C> <C>
Connecticut $ 835,605 0.44%
New Jersey 1,944,340 0.47%
Pennsylvania 2,416,419 0.48%
</TABLE>
* Advisory fees paid as a percentage of average daily net assets.
Except as to Trustees of the Portfolios who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolios out of such investment adviser fee. Investors Bank & Trust
Company (IBT), an affiliate of EVM and BMR, serves as custodian of the
Portfolios. Pursuant to the custodian agreements, IBT receives a fee reduced by
credits which are determined based on the average daily cash balances each
Portfolio maintains with IBT. Certain of the officers and Trustees of the
Portfolios are officers and directors/trustees of the above organizations.
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 the Trustees Deferred Compensation Plan. For the
year ended July 31, 1995, no significant amounts have been deferred.
37
<PAGE>
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the year ended July 31, 1995, were as follows:
<TABLE>
<CAPTION>
CONNECTICUT PORTFOLIO NEW JERSEY PORTFOLIO PENNSYLVANIA PORTFOLIO
--------------------- -------------------- ----------------------
<S> <C> <C> <C>
Purchases $55,774,738 $219,433,205 $220,102,046
Sales 58,525,219 237,114,073 264,136,096
</TABLE>
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investments
owned by each Portfolio at July 31, 1995, as computed on a federal income tax
basis, are as follows:
<TABLE>
<CAPTION>
CONNECTICUT NEW JERSEY PENNSYLVANIA
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ------------
<S> <C> <C> <C>
Aggregate Cost $192,808,845 $389,842,758 $477,086,127
------------ ------------ ------------
Gross unrealized appreciation $ 3,281,263 $ 15,128,046 $ 17,966,732
Gross unrealized depreciation 4,835,599 1,485,389 3,985,529
------------ ------------ ------------
Net unrealized appreciation (depreciation) $ (1,554,336) $ 13,642,657 $ 13,981,203
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other Portfolios and Funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Each Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests or settle securities transactions.
Interest is charged to each Portfolio or Fund based on its borrowings at an
amount above either the bank's adjusted certificate of deposit rate, a variable
adjusted certificate of deposit rate, or a federal funds effective rate. In
addition, a fee computed at an annual rate of 1/4 of 1% on the $20 million
committed facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds and portfolios
at the end of each quarter. The New Jersey Portfolio and Pennsylvania Portfolio
did not have any significant borrowings or allocated fees during the period. For
the Connecticut Portfolio, the average daily loan balance for the year ended
July 31, 1995 was $1,583,254 and the average interest rate was 7.27%. The
maximum borrowings outstanding at any point during the year was $6,997,000.
38
<PAGE>
(6) FINANCIAL INSTRUMENTS
The Portfolios regularly trade in financial instruments with off-balance sheet
risk in the normal course of their investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment a Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at July 31, 1995 is
as follows:
<TABLE>
<CAPTION>
FUTURES CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION APPRECIATION
- --------- ----------------- --------- -------- --------------
<S> <C> <C> <C>
Connecticut 9/95 145 U.S. Treasury Bonds Short $111,459
New Jersey 9/95 125 U.S. Treasury Bonds Short $ 45,304
</TABLE>
At July 31, 1995 the Connecticut and New Jersey Portfolios had sufficient cash
and/or securities to cover margin requirements on open futures contracts. The
Pennsylvania Portfolio did not have any open obligations under these financial
statements at July 31, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Portfolios changed their fiscal year end from September 30, to July 31,
effective July 31, 1994.
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF:
CONNECTICUT TAX FREE PORTFOLIO
NEW JERSEY TAX FREE PORTFOLIO
PENNSYLVANIA TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Connecticut Tax Free Portfolio, New Jersey Tax
Free Portfolio, and Pennsylvania Tax Free Portfolio as of July 31, 1995, and the
related statements of operations for the year then ended, and the statements of
changes in net assets and the supplementary data for the year ended July 31,
1995, the ten months ended July 31, 1994 and for the period from the start of
business, February 1, 1993, to September 30, 1993. These financial statements
and supplementary data are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on these financial statements and
supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1995, by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other audit procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of Connecticut Tax Free
Portfolio, New Jersey Tax Free Portfolio, and Pennsylvania Tax Free Portfolio at
July 31, 1995, and the results of their operations, the changes in their net
assets and their supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
AUGUST 25, 1995
40
<PAGE>
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
FUNDS
OFFICERS
THOMAS J. FETTER
President
JAMES B. HAWKES
Vice President, Trustee
ROBERT B. MACINTOSH
Vice President
JAMES L. O'CONNOR
Treasurer
THOMAS OTIS
Secretary
INDEPENDENT TRUSTEES
DONALD R. DWIGHT
President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
SAMUEL L. HAYES, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School
of Business Administration
NORTON H. REAMER
President and Director, United Asset
Management Corporation
- --------------------------------------------------------------------------------
PORTFOLIOS
OFFICERS
THOMAS J. FETTER
President
JAMES B. HAWKES
Vice President, Trustee
ROBERT B. MACINTOSH
Vice President and Portfolio Manager of
New Jersey Tax Free Portfolio
DAVID C. REILLY
Portfolio Manager of Pennsylvania
Tax Free Portfolio
NICOLE ANDERES
Portfolio Manager of Connecticut
Tax Free Portfolio
JAMES L. O'CONNOR
Treasurer
THOMAS OTIS
Secretary
INDEPENDENT TRUSTEES
DONALD R. DWIGHT
President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
SAMUEL L. HAYES, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School
of Business Administration
NORTON H. REAMER
President and Director, United Asset
Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Trust Company
JACK L. TREYNOR
Investment Adviser and Consultant
41
<PAGE>
INVESTMENT ADVISER OF STATE TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL STATE TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
42
<PAGE>
(THIS SPACE INTENTIONALLY LEFT BLANK.)
<PAGE>
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Funds, including
distribution plan, sales charges and expenses.
Please read the prospectus carefully before
you invest or send money.
EATON VANCE MUNICIPALS TRUST
24 FEDERAL STREET
BOSTON, MA 02110
T-3CSRC
